Relative Benchmark Rating and Persistence Analysis: Evidence from Italian Equity Funds

Abstract:     
The recent introduction into the Italian mutual fund market of Morningstar performance rating of private institutions gives rise to the question of what is the relation between this relative benchmark measure and the other traditional performance measures. This paper provides a comprehensive analysis of the relative benchmark performance measure (Morningstar rating) applied to Italian equity funds. It is found that this performance measure is highly correlated with the classical performance measures (Sharpe ratio, Sortino ratio and Treynor ratio) and poorly correlated with the customized benchmark measure (Information ratio). Furthermore, performing a persistence analysis, using non-parametric methods Cross-product Ratio and Chi-squared test, it is observed that only the Morningstar rating measure generates a strong degree of persistence. These results deviate from most European studies, which argue that Italian mutual funds display weak persistence.

Keywords: Mutual funds, performance evaluation, persistence analysis, style analysis, morningstar rating, risk adjusted measures

JEL Classification: G23, G12, G14

Accepted Paper Series