Morningstar ratings and performance of mutual funds
Date
2013
Authors
Sinha, Partha Sarati
Journal Title
Journal ISSN
Volume Title
Publisher
Lethbridge, Alta. : University of Lethbridge, Faculty of Management
Abstract
In this study, we examine the predictive power of Morningstar’s new ratings for mutual funds’ future performance and compare its predictive power with four competing predictors. We also examine Morningstar’s new ratings’ predictive power in bull and bear periods. Furthermore, we compare the predictive power of the new and old star-ratings. We perform all these tests for both U.S. and Canadian equity funds. We use a regression model and non-parametric tests in this study.
The results suggest Morningstar’s new ratings accurately rank funds and predict out-of-sample performance of only five-star rated complete funds for short- and medium-terms for U.S., and for medium-term only for Canada. Also, predictive power of Morningstar’s new ratings is low compared to four alternative predictors for both countries. Further, the new star ratings accurately predicts for bear period for both markets. The old ratings (new ratings), however relatively predict better for U.S. funds (Canadian funds).
Description
ix, 184 leaves ; 29 cm
Keywords
Morningstar, Inc. -- Research , Mutual funds -- Ratings and rankings -- Research , Investment analysis , Dissertations, Academic