Final answer:
Asset-backed securities, such as mortgage-backed securities, are traded according to average life instead of fixed maturity due to factors like prepayments, which affect the rate of mortgage repayments.
Step-by-step explanation:
The type of asset that is generally traded according to average life rather than stated maturity is known as an asset-backed security, such as a mortgage-backed security (MBS). MBSs are created from the pooling of mortgages and are traded in financial markets. Unlike traditional bonds that have a fixed maturity date, the average life of an MBS depends on the rate at which the underlying home loans are repaid, which can be influenced by factors like interest rates and early repayment of mortgages. In the secondary loan market, where these loans are bought and sold, the average life becomes a significant measure of investment return because it reflects the actual expected duration of the investment, considering prepayments.