The Impact of the Morningstar Sustainability Rating on Mutual Fund Flows

53 Pages Posted: 16 Nov 2017 Last revised: 9 May 2018

See all articles by Manuel Ammann

Manuel Ammann

University of St. Gallen - School of Finance

Christopher Bauer

University of St. Gallen, Students

Sebastian Fischer

University of St. Gallen - School of Finance

Philipp Müller

University of St. Gallen, Students

Date Written: November 17, 2017

Abstract

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

Ammann, Manuel and Bauer, Christopher and Fischer, Sebastian and Müller, Philipp, The Impact of the Morningstar Sustainability Rating on Mutual Fund Flows (November 17, 2017). University of St.Gallen, School of Finance Research Paper No. 2017/18. Available at SSRN: https://ssrn.com/abstract=3068724 or http://dx.doi.org/10.2139/ssrn.3068724

Manuel Ammann

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Christopher Bauer

University of St. Gallen, Students ( email )

St. Gallen
Switzerland

Sebastian Fischer (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Philipp Müller

University of St. Gallen, Students ( email )

St. Gallen
Switzerland

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