Hostname: page-component-7bb8b95d7b-dtkg6 Total loading time: 0 Render date: 2024-09-06T16:12:05.443Z Has data issue: false hasContentIssue false
  • English
  • Français

The Allocation of Risk: Some Implications of Fixed versus Index-Linked Mortgages

Published online by Cambridge University Press:  06 April 2009

Jerome B. Baesel  and
Nahum Biger
Get access Rights & Permissions [Opens in a new window]

Extract

Whether borrowers or lenders gain or lose due to inflation depends upon the nominal rate agreed to, the realized inflation rate and their inflationary expectations when the contract was written. The high rate of inflation in recent years has resulted in the real interest rates on traditional, fixed–rate mortgages being substantially below the nominal, contract rate. This recent experience has stimulated borrowers and lenders to consider the implications of inflation in their contract negotiations.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 2 , June 1980 , pp. 457 - 468
Copyright
Copyright © School of Business Administration, University of Washington 1980

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Biger, N. “Real Returns, Portfolio Decisions and the Capital Asset Pricing Model.” Unpublished Doctoral Dissertation, York University (04 1974).CrossRefGoogle Scholar
[2]Chen, A. H. and Boness, J. A.. “Effects of Uncertain Inflation on the Investment and Financing Decisions of a Firm.” Journal of Finance, Vol. 30, No. 2 (05 1975), pp. 469–484.CrossRefGoogle Scholar
[3]Darby, M. “The Financial and Tax Effects of Monetary Policy on Interest Rates.” Economic Inquiry, Vol. 13 (06 1975), pp. 266–276.CrossRefGoogle Scholar
[4]Fama, E. F. “Short–Term Interest Rates as Predictors of Inflation.” American Economic Review, Vol. 65, No. 3 (06 1975), pp. 269–282.Google Scholar
[5]Gordon, M. J. and Halpern, P. M.. “Bond Share Yield Spreads under Uncertain Inflation.” American Economic Review, Vol. 66, No. 4 (09 1976), pp. 559–565.Google Scholar
[6]Hagerman, R. L. and Kim, E. H.. “Capital Asset Pricing with Price Level Changes.” Journal of Financial and Quantitative Analysis, Vol. 11, No. 3 (09 1976), pp. 381–390.CrossRefGoogle Scholar
[7]Hirschleifer, J.Investment, Interest and Capital. Englewood Cliffs, N.J.: Prentice–Hall (1970).Google Scholar
[8]Lesard, J. and Modigliani, F.. “Inflation and Residential Financing.” Innovations in Mortgage Design, Federal Reserve Bank of Boston, Conference Series, Vol. 14 (1975).Google Scholar
[9]Lintner, J. “Security Prices, Risk and Maximal Gains from Diversification.” Journal of Finance, Vol. 20, No. 4 (12 1965), pp. 587–615.Google Scholar
[10]Lintner, J. “The Valuation of Risky Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics, Vol. 47 (02 1965), pp. 13–37.CrossRefGoogle Scholar
[11]Maisel, S. J. and Ronlac, S. E.. Real Estate Investment Finance. New York: McGraw–Hill (1978), p. 21.Google Scholar
[12]Mossin, J. “Equilibrium in a Capital Asset Market.” Econometrica, Vol. 34, No. 4 (10 1966), pp. 768–783.CrossRefGoogle Scholar
[13]Mundell, R. “Inflation and Real Interest.” Journal of Political Economy, Vol. 71, No. 3 (06 1963), pp. 280–283.CrossRefGoogle Scholar
[14]Roll, R. “Assets, Money, and Commodity Price Inflation under Uncertainty.” Journal of Money, Credit and Banking, Vol. 5, No. 4 (11 1973), pp. 903–923.CrossRefGoogle Scholar
[15]Sharpe, W. F. “Capital Asset Pricing: A Theory of Market Equilibrium under Conditions of Risk.” The Journal of Finance, Vol. 19 (09 1964), pp. 425–442.Google Scholar
[16]Von Furstenberg, G. “The Equilibrium Spread between Variable Rates and Fixed Rates on Long–Term Financing Instruments.” Journal of Financial and Quantitative Analysis, Vol. 8, No. 5 (12 1973), pp. 807–819.CrossRefGoogle Scholar