Rating a Robo-Rater

17 Pages Posted: 20 Apr 2020

See all articles by David Nanigian

David Nanigian

San Diego State University - Fowler College of Business - Finance Department

Date Written: December 31, 2019

Abstract

Since 2011, Morningstar has issued Morningstar Analyst Ratings on many of the largest mutual funds in the USA. In June 2017, Morningstar launched the Morningstar Quantitative Rating™ to provide a forward-looking rating on all mutual funds. Morningstar uses a “robo-rater” machine-learning model to assign Morningstar Quantitative Ratings. However, the “robo-rater” cannot utilize the complete set of information available to Morningstar’s analyst as it cannot process “soft information”. The purpose of this study is to evaluate if and how this “robo-rater” is conducive to mutual fund selection. I find that the only value of the “robo-rater” is in its assessment of mutual fund expenses and that its inability to process “soft information” makes the Morningstar Quantitative Rating™ much less useful than the Morningstar Analyst Rating™.

Keywords: FinTech, Mutual fund fees, Mutual fund performance, Mutual fund ratings, Robo-advising, Soft information

JEL Classification: G11, G23, G24

Suggested Citation

Nanigian, David, Rating a Robo-Rater (December 31, 2019). Available at SSRN: https://ssrn.com/abstract=3580986 or http://dx.doi.org/10.2139/ssrn.3580986

David Nanigian (Contact Author)

San Diego State University - Fowler College of Business - Finance Department ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States
213-545-1036 (Phone)

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