Measuring Potential Gse Funding Advantages

Posted: 3 May 2002

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Arthur Warga

University of Houston - Department of Finance

Abstract

As the size of Government Sponsored Enterprises (GSE) has grown, attention has focused on the relationship between the federal government and the GSEs, with particular attention focused on estimating the impact of this relationship on GSE debt costs. Quantifying the GSEs' cost advantage is a controversial exercise with several competing methodologies providing divergent values. Thus, this paper reviews the methods that have been utilized in previous studies and recommends an alternative approach that overcomes many of the criticisms of previous work. By using offering yields on GSE debt, we find that the three housing GSEs cost advantage is a controversial exercise with several competing methodologies providing divergent values. Thus, this paper reviews the methods that have been utilized in previous studies and recommends an alternative approach that overcomes many of the criticisms of previous work. By using offering yields on GSE debt, we find that the three housing GSEs enjoyed an average advantage of between 25 and 29 basis points over "AA" banking sector bonds, between 43 and 47 basis points over "A" rated bonds, and between 76 issues. We find that our results are robust to both the basic approach taken as well as to model specification.

Keywords: government sponsored enterprises, yield spreads

Suggested Citation

Ambrose, Brent W. and Warga, Arthur, Measuring Potential Gse Funding Advantages. The Journal of Real Estate Finance & Economics, Vol. 25, No. 2. Available at SSRN: https://ssrn.com/abstract=307801

Brent W. Ambrose (Contact Author)

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Arthur Warga

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States
713-743-4779 (Phone)
713-743-4789 (Fax)

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