%0 Journal Article
%A Chervachidze, Serguei
%A Gallagher, Mark
%A Wheaton, William C.
%T What’s in a Loan Yield? *The Construction of a Hedonic Index of Yields for Commercial Real Estate Mortgages*
%D 2015
%R 10.3905/jpm.2015.41.6.126
%J The Journal of Portfolio Management
%P 126-139
%V 41
%N 6
%X In this article, the authors investigate the utility of using a hedonic model in constructing an index of yields on commercial mortgage loans. They use a large unique proprietary dataset of mortgage originations from 2000Q3–2012Q4 to construct a hedonic model of yields as a function of loan characteristics as well as time effects. The authors then use the hedonic model to construct a constant-quality index of mortgage yields and test whether the index performs better in uncovering underlying equilibrium relationships with other economy-wide yield variables than a simple average of yields. They find evidence that is strongly in favor of a hedonic index. Finally, the authors build a forecasting model of the hedonic index as a function of a widely available index of corporate bond yields and test the forecasting performance of the model. The major finding is that the index works well in a forecasting model and lends itself readily to forecasting applications.
%U https://jpm.pm-research.com/content/iijpormgmt/41/6/126.full.pdf