Selectivity, Market Timing and the Morningstar Star-Rating System
AbstractThis paper evaluates the Morningstar mutual fund ranking system. We find that indeed higher Morningstar ratings are associated with higher returns on the portfolios including respectively five-, four-, three-, two- and one-star funds only (STAR5 to STAR1). We then perform an unconditional and conditional portfolio performance evaluation. In both cases the evidence suggests that the better performance of the STAR3, STAR4 and STAR5 categories reflects superior stock selection rather than market timing abilities. Overall, the implication for the Morningstar ranking system is that this is most effective in identifying the worst- performing funds (STAR1 or STAR2) rather than the best-performing ones.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 874.
Length: 25 p.
Date of creation: 2009
Date of revision:
Mutual Fund; Morningstar Star-Rating System; CAPM; Conditional and unconditional portfolio performance evaluation;
Other versions of this item:
- Antonios Antypas & Guglielmo Maria Caporale & Nikolaos Kourogenis & Nikitas Pittis, 2009. "Selectivity, Market Timing and the Morningstar Star-Rating System," CESifo Working Paper Series 2580, CESifo Group Munich.
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-13 (All new papers)
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