The Impact of the Morningstar Sustainability Rating on Mutual Fund Flows
53 Pages Posted: 16 Nov 2017 Last revised: 9 May 2018
Date Written: November 17, 2017
We examine the effect of the introduction of Morningstar’s Sustainability Rating in March 2016 on U.S. mutual equity fund flows. Using panel regressions, propensity score matching, and an event study methodology we find strong and robust evidence that retail investors shift money away from low-rated and into high-rated funds. The effect is driven by the publication of the Morningstar Sustainability Rating and not due to a general attractiveness of sustainable funds. Institutional investors do not react to the publication of the Rating. We estimate that an average high-rated retail fund receives between $ 4.1 million and $ 10.1 million higher inflows and an average low-rated retail fund suffers from $ 1.0 million to $ 5.0 million lower net flows than an average-rated fund during the first year after the Rating was published.
Keywords: Mutual Fund, Sustainability, Investment Decisions, Information
JEL Classification: G11, G14, G23
Suggested Citation: Suggested Citation