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Determinants of Performance for Mortgage‐Backed Securities Funds

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  • John G. Gallo
  • Richard J. Buttimer
  • Larry J. Lockwood
  • Ronald C. Rutherford

Abstract

This article examines the performance of mortgage‐backed securities (MBS) mutual funds from January 1987 to June 1995. As a group, the MBS mutual funds underperform both the Salomon and Lehman Brothers MBS market benchmarks. The relative underperformance of the MBS mutual funds is due to poor securities selection and timing decisions. Fund expenses also contribute significantly to the underperformance, while fund load, turnover, management fees and other fund characteristics do not materially affect performance. The underperformance is found to be concentrated in several exceptionally bad months during the sample period. Testing indicates that the MBS mutual funds underperform the MBS benchmark during months of rising interest rates, but match the MBS benchmark during months of falling interest rates.

Suggested Citation

  • John G. Gallo & Richard J. Buttimer & Larry J. Lockwood & Ronald C. Rutherford, 1997. "Determinants of Performance for Mortgage‐Backed Securities Funds," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(4), pages 657-681, December.
    • Handle: RePEc:bla:reesec:v:25:y:1997:i:4:p:657-681
    DOI: 10.1111/1540-6229.00732
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    Cited by:

    1. Mayank Patel & Vinodh Madhavan & Supratim Gupta, 2022. "Selection ability, timing ability, and performance persistence of Indian fixed income mutual funds," Journal of Asset Management, Palgrave Macmillan, vol. 23(1), pages 46-61, February.

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