will not protect our net book value against spread risk and, therefore, the value of our agency securities and our net book value could decline.
The risk management actions we take may lower our earnings and dividends in the short term to further our objective of maintaining attractive levels of earnings and dividends over the long term. In addition, some of our hedges are intended to provide protection against larger rate moves and as a result may be relatively ineffective for smaller changes in interest rates. There can be no certainty that our Manager's projections of our exposures to interest rates, prepayments, extension or other risks will be accurate or that our hedging activities will be effective and, therefore, actual results could differ materially.
Income from hedging transactions that we enter into to manage risk may not constitute qualifying gross income under one or both of the gross income tests applicable to REITs. Therefore, we may have to limit our use of certain advantageous hedging techniques, which could expose us to greater risks than we would otherwise want to bear, or implement those hedges through a taxable REIT subsidiary ("TRS"). Implementing our hedges through a TRS could increase the cost of our hedging activities because a TRS is subject to tax on income and gains.
Trends and Recent Market Impacts
The fixed income markets were relatively stable during the first three quarters of 2014, a sharp contrast to the extreme interest rate volatility and price deterioration experienced in 2013. The consensus view at the start of 2014 was that interest rates would continue to increase and agency MBS spreads would widen as the Fed exited its third quantitative easing program ("QE3"). Weaker economic data and lower inflation expectations both domestically and abroad, however, led to a significant rally in interest rates and a flattening of the yield curve. Despite this unexpected movement in interest rates and the Fed’s gradual reduction of asset purchases, agency MBS outperformed other fixed income products over the first three quarters of 2014.
The relative outperformance of agency MBS was the primary driver of our aggregate economic return of 14.9% for the first three quarters of 2014, comprised of $1.95 dividends per common share and a $1.61 increase in our net book value per common share. The strong performance of agency MBS over this time period was driven by historically low mortgage origination volume, conservative portfolio positioning by fixed income investors who remain underweight agency MBS and the favorable "stock effect" of the Fed's ownership of approximately one third, or nearly $1.8 trillion of the agency MBS market as of September 30, 2014. Our performance also benefited from our active approach to portfolio management, which included repositioning our asset portfolio, modifying the composition of our hedge portfolio and operating with a larger duration gap (the estimated difference between the interest rate sensitivity of our assets and our liabilities and hedges).
By the start of 2014, we had increased our 15 year fixed rate mortgage position to just over 50% of our portfolio, which benefited our first quarter performance as 15 year MBS generally outperformed 30 year MBS during the first quarter on a hedge adjusted basis. In the second quarter, the price of higher coupon 15 year agency MBS increased significantly relative to other agency MBS instruments. In response to this strong relative performance, we reduced our 15 year position in favor of 30 year mortgages over the second and third quarters. As of September 30, 2014, 30 year mortgages represented 65% of our portfolio, a significant increase from 46% as of March 31, 2014.
Our performance during the first three quarters of 2014 also benefited from favorable financing terms available in the TBA dollar roll market. Given the attractiveness of TBA investments, we allocated a larger portion of our portfolio to TBA securities, rather than holding our investments in pool form funded by repurchase agreements. For the first three quarters of 2014, our average TBA dollar roll position was $11.4 billion, or approximately 17% of our investment portfolio, compared to $2.3 billion, or approximately 3% of our investment portfolio as of December 31, 2013.
Our decision to operate with a slightly larger duration gap during the first three quarters of 2014 was consistent with our moderate leverage profile, the asymmetry of our duration gap between contraction and extension risks and our assessment of the correlation between mortgage spreads and interest rates. When extension risk is viewed as more significant, we will tend to operate with a smaller duration gap. When extension risk is deemed less significant, we will tend to operate with a larger duration gap. (For further discussion of our interest rate sensitivity, refer to Quantitative and Qualitative Disclosures about Market Risk in this Form 10-Q.) In contrast to the spread correlation that we experienced in 2013, agency MBS performance has generally been inversely correlated with interest rate changes through the first three quarters of 2014, as spreads have widened when rates fell and tightened when rates rose. When agency MBS spreads are inversely correlated with interest rates, we tend to operate with a positive duration gap and when spreads are positively correlated with interest rates, we tend to operate with a very small or negative duration gap.
Looking ahead, we believe our portfolio is well positioned for a wide range of interest rate scenarios. In a declining rate environment, our significant holding of assets with favorable prepayment characteristics should gain in value relative to other mortgage investments. As of September 30, 2014, 75% of our fixed-rate securities, or 55% including net TBA mortgage positions, were comprised of loans with slower prepayment attributes (e.g., loans originated under the U.S. Government sponsored Home