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A graphlick showing mortgage prices

The work of Hans Rosling and Gapminder (now part of Google) highlighted moving images as part of the graphics toolbox. Let me call these "graphlicks", graph-movies. It is clear that lots of people love graphlicks.

There is one open problem in graphlicks that needs creative solutions: how to incorporate memory into the experience?

If a movie is required to show patterns in the data, it would be to highlight a temporal pattern -  the changes over time are interesting. As the movie goes from Day/Month/Year 1 to Day/Month/Year X, the old stuff is usually taken off the canvass to make way for the newer stuff. In effect, we rely on the reader's memory compared on the current scene in the movie.

What gets me thinking about this is a graphlick created by my friend Adam, whose startup Empirasign compiles and markets data on mortgage prices and other financial data:

Screenshots:

Empirasign_screenshots

Youtube link here.

The data relates to 30-year mortgages originated in 2010. The coupon rate shown on the horizontal axis ranges from below 4% to 8%, which are the cash flows an investor gets. Each line chart shows how the "market" was valuing the 30-year mortgages of different coupon rates on a particular day. The price is an index, equalling 100 at issue.

The general shape of the line indicates that the market valued the higher-coupon ones more than the lower-coupon ones (except for the right tip of the line). Since interest rates have been coming down, the mortgages issued at 4% coupon were newer ones than those issued at 7-8%, which means they had higher "duration risk" for investors, thus lower value. The dip beyond 7% may be due to a countervailing "prepayment risk": if the debtholder prepays, the investor would be forced to take 100 for something they may have paid over 100.

As you play the graphlick, two features of the data ought to stand out: the general shift upwards of the line which indicates that the market was increasing the valuation of these mortgages over the year (regardless of coupon); also the stronger volatility on the left-side of the line.

Noticing either feature requires the reader to remember the trajectory of the lines. What are some ways to help the reader?

  • Fade out but don't remove old lines?
  • Include a cumulative average line?
  • Include an "envelope" that captures the maximum and minimum prices over time?

Comments

Tom West

The advnatage of using time (instead of space) as a third axis is that the human eye is very sensitive to movement. So, you notice the left hand whipping around and the gradual shift upwards very easily.

Arts

Nice technique. Perhaps the video should show the last 5 data lines with decreasing shading (fade-out to white), and then end the video with about 3-5 lines (also with fade-out to white) showing where the line was going back 3, 6 and 9-months?

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