GABAIX, XAVIER; KRISHNAMURTHY, ARVIND; VIGNERON, OLIVIER - In: Journal of Finance 62 (2007) 2, pp. 557-595
"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,...