Gabaix, Xavier; Krishnamurthy, Arvind; Vigneron, Olivier - National Bureau of Economic Research (NBER) - 2005
"Limits of Arbitrage" theories hypothesize that the marginal investor in a particular asset market is a specialized arbitrageur rather than a diversified representative investor. We examine the mortgage-backed securities (MBS) market in this light. We show that the risk of homeowner prepayment,...