RT Journal Article
SR Electronic
T1 Risk and Return in the Mortgage Market
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 5
OP 18
DO 10.3905/jfi.2000.319235
VO 10
IS 1
A1 Amitabh Arora
A1 David K. Heike
A1 Ravi K. Mattu
YR 2000
UL https://pm-research.com/content/10/1/5.abstract
AB The authors ask how mortgages interact with the other fixed-income markets and what these linkages imply about the key drivers of mortgage excess returns. What is the role of mortgages in an actively managed fixed-income portfolio? When should mortgages be overweighted, and how should they be hedged? An analysis of the performance of mortgages since 1989 helps to address these questions. A five-factor model that includes credit spread changes and spread directionality helps explain up to almost 60% of the historical variation in mortgage excess returns and provides some guidance on appropriate hedging techniques.