Rating a Robo‐Rater

Posted: 4 Feb 2021

See all articles by David Nanigian

David Nanigian

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 4, 2021


Since 2011, Morningstar has issued Morningstar Analyst Ratings on many of the largest mutual funds in the United States. 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 no evidence that the “robo‐rater” offers value to investors beyond its assessment of mutual fund expenses and I find that its inability to process “soft information” makes the Morningstar Quantitative Rating™ much less useful than the Morningstar Analyst Rating™. I also examine the relationship between Morningstar Quantitative Rating™ and mutual fund flows and find that the “robo‐rater” has little to no influence on investors' choice of mutual funds.

Full Text Available Here: https://doi.org/10.1002/cfp2.1090

Suggested Citation

Nanigian, David, Rating a Robo‐Rater (February 4, 2021). Financial Planning Review, Vol. 3, No. 3, 2020, Available at SSRN: https://ssrn.com/abstract=3779565

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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