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Morningstar Ratings and Mutual FundPerformance

Published online by Cambridge University Press:  06 April 2009

Christopher R. Blake  and
Matthew R. Morey
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Abstract

This study examines the Morningstar rating system as apredictor of mutual fund performance for U.S.domestic equit funds. We also compare the predictiveabilities of the Morningstar rating system withthose of alternative predictors. The resultsindicate findings that are robust across differentsamples, ages and styles of funds, and performancemeasures. First, low ratings from Morningstargenerally indicate relatively poor futureperformance. Second, there is little statisticalevidence that Morningstar's highest-rated fundsoutperform the next-to-highest and median-ratedfunds. Third, Morningstar ratings, at best, do onlyslightly better than the alternative predictors inforecasting future fund performance.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 3 , September 2000 , pp. 451 - 483
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

Blake, Graduate School of BusinessAdministration, Fordham University, 113 West 60thSt., New York, NY 10023; Morey, Lubin School ofBusiness, Pace University, 1 Pace Plaza, New York,NY 10038. Morey acknowledges financial supportfrom the Econoic and Pension Research Departmentof TIAA-CREF. We thank Will Goetzmann and CharlesTrzcinka for data and Stephen Brown (the editor),Edwin Elton, Steve Foerster, Doug Fore, MartineGruber, Mark Hulbert, Zoran Ivković (the referee),Richard C. Morey, Derricke Reagle, EmilyRosenbaum, H. D. Vinod, Mark Warshawsky, andSeminar participants at the Securities andExchange Commission and the 1999 European FinanceAssociation Meetings (Helsinki) for helpfulcomments and suggesions.

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