Abstract

http://ssrn.com/abstract=286157
 
 

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Star Power: The Effect of Morningstar Ratings on Mutual Fund Flow


Diane Del Guercio


University of Oregon, Lundquist College of Business

Paula A. Tkac


Federal Reserve Banks - Federal Reserve Bank of Atlanta

January 2007

FRB of Atlanta Working Paper No. 2001-15

Abstract:     
We apply an event-study methodology on over 10,000 Morningstar star rating changes and find that Morningstar has substantial independent influence on the investment allocation decisions of retail mutual fund investors. It is the discrete change in the star rating itself, and not the change in the underlying performance measures that drives flow. We document economically and statistically significant positive abnormal flow following rating upgrades, and negative abnormal flow following rating downgrades. In contrast to the cross-sectional flow-performance literature, we find evidence of investor punishment of performance declines, some of which is evident immediately in the month of the rating change.

Number of Pages in PDF File: 50

Keywords: mutual funds, asset flow, event-study

JEL Classification: G11, G14, G20

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Date posted: October 5, 2001  

Suggested Citation

Del Guercio, Diane and Tkac, Paula A., Star Power: The Effect of Morningstar Ratings on Mutual Fund Flow (January 2007). FRB of Atlanta Working Paper No. 2001-15. Available at SSRN: http://ssrn.com/abstract=286157 or http://dx.doi.org/10.2139/ssrn.286157

Contact Information

Diane Del Guercio
University of Oregon, Lundquist College of Business ( email )
Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-5179 (Phone)
541-346-5179 (Fax)
Paula A. Tkac (Contact Author)
Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )
1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8813 (Phone)
404-498-8810 (Fax)
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