Estimation Risk in Mutual Fund Ratings: The Case of Morningstar

18 Pages Posted: 17 May 2001

See all articles by Matthew R. Morey

Matthew R. Morey

Pace University - Lubin School of Business - Department of Finance and Economics

Hrishikesh D. Vinod

Fordham University - Department of Economics

Date Written: May 17, 2001

Abstract

In this paper we examine estimation risk in the well-known Morningstar mutual fund star rating system. We show that due to using a system that rates funds regardless of age differences, Morningstar has created a situation where the estimates upon which younger funds ratings are based have significantly higher estimation risk than the estimates upon which the ratings of older funds are based. As a result, investors can be somewhat less confident that the ratings of young funds are truly what they are estimated to be. We illustrate our point by investigating 1281 international equity mutual funds.

Keywords: Mutual fund ratings, estimation risk, Morningstar

JEL Classification: G23

Suggested Citation

Morey, Matthew R. and Vinod, Hrishikesh D., Estimation Risk in Mutual Fund Ratings: The Case of Morningstar (May 17, 2001). Available at SSRN: https://ssrn.com/abstract=270234 or http://dx.doi.org/10.2139/ssrn.270234

Matthew R. Morey (Contact Author)

Pace University - Lubin School of Business - Department of Finance and Economics ( email )

One Pace Plaza
New York, NY 10038-1502
United States
212-618-6471 (Phone)

HOME PAGE: http://webpage.pace.edu/mmorey/

Hrishikesh D. Vinod

Fordham University - Department of Economics ( email )

Dealy Hall
Bronx, NY 10458
United States
718-817-4065 (Phone)
718-817-3518 (Fax)

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