Star Power: The Effect of Morningstar Ratings on Mutual Fund Flows

Guercio, Diane Del; Tkac, Paula A.

doi:10.2139/ssrn.286157

Cited by 133 publications

(140 citation statements)

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“…See, for instance, Sirri andTufano (1998) andDel Guercio andTkac (2008), who study the impact on fund flows of fund-specific characteristics, including fund age, investment style, and Morningstar rating. For our study, since we consider aggregated flows for a given asset class (e.g.…”

Section: Other Empirical Regularities In Mutual Fund Flowsmentioning

confidence: 99%

Seasonal Asset Allocation: Evidence from Mutual Fund Flows

et al. 2012

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractOver the past 30 years, mutual funds have become the dominant vehicle through which individual investors prepare for retirement via defined contribution plans. Further, money market mutual funds, which hold $2.7 trillion as of September 2013, are now a major part of the cash economy in the U.S. Accordingly, the flow of money to and from different mutual fund categories (e.g., equities vs. money funds) increasingly reflects the sentiment or risk aversion of the general population. In this study, we analyze flows between different categories of mutual funds, and find strong evidence of a seasonality in risk aversion of individual investors. Specifically, we find that aggregate investor flow data reveals an investor preference for U.S. money market and government bond mutual funds in the autumn, and equity funds in the spring, controlling for the influence of seasonality in past performance, advertising, liquidity needs, and capital gains overhang on fund flows. This movement of large amounts of money between fund categories is correlated with a proxy for variation in investor risk aversion across the seasons, consistent with investors' revealed preferences for safer investments in the fall, and riskier investments in the spring. We find similar evidence in Canadian mutual fund flows, and in flows among Australian funds, where the seasons are six months out of phase relative to Canada and the U.S. While prior evidence regarding the influence of seasonally changing risk aversion on financial markets relies on seasonal patterns in asset returns, we provide the first direct trade-related evidence.JEL Classification: G11 Keywords: time-varying risk aversion; sentiment; mutual fund flow seasonality; net exchanges; net flows; risk tolerance; risk aversion * Kamstra: Schulich School of Business, York University. Kramer (Corresponding Author): Rotman School of Management, University of Toronto, 105 St. George St., Toronto Ont., M5S 3E6, Canada. Tel: 416-978-2496; Fax: 416-971-3048; Email: lisa.kramer@rotman.utoronto.ca. Levi: Sauder School of Business, University of British Columbia. Wermers: Smith School of Business, University of Maryland. We have benefited from valuable conversations with Devraj Basu (discussant), Hank Bessembinder, Michael Brennan, Raymond da Silva Rosa (discussant), Kent Daniel, Ramon DeGennaro, Roger Edelen, Zekeriya Eser, Henry Fenig, Mark Fisher, Kenneth Froot, Luis GoncalvesPinto (discussant)...

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Section: Other Empirical Regularities In Mutual Fund Flowsmentioning

confidence: 99%

Seasonal Asset Allocation: Evidence from Mutual Fund Flows

et al. 2012

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“…DelGuercio and Tkac (2001) have found that the number of years of fund establishment is negatively related to financial flows [9]. Therefore, referring to DelGuercio and Tkac (2001), the natural logarithm ln(Age i,t-1 ) of the fund's life span is used as a control variable to control the potential impact of fund age differences on financial flows [9].…”

Section: Control Variablesmentioning

confidence: 99%

An Empirical Study on the Non-Linear Relationship between the Performance of Funds and the Cash Flows of Funds

Chen¹

2018

AJIBM

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This article takes 152 open-ended stock funds and partial stock funds established before the second quarter of 2015 as samples. Using the regression model of the non-balanced panel data fixed-effect model, this paper discussed the specific impact of the historical performance and other influencing factors on the purchase and redemption of investors from the first quarter of 2013 to the second quarter of 2017. And the nonlinear relationship between fund performance and capital flow is investigated by piecewise linear regression. The empirical results reveal that the fund's lagging quarterly performance has a positive impact on the funds flow in the next quarter. Investors generally chase performance rather than "reverse selection", and find that the relationship between historical performance and capital flow is non-linear. The fund flow has different sensitivity to outstanding performance fund, medium performance fund and poor performance fund. Fund flow is most sensitive to outstanding performance funds, followed by the medium performance fund, and insensitive to the poor performance funds. Finally, this paper uses the theory of "principal-agent" to analyze the results, and puts forward suggestions to improve the performance incentive mechanism of China's fund market.

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“…Del Guercio and Tkac (2008) provide evidence that money flowing to mutual funds responds to changes in Morningstar ratings. However, Morningstar rankings are not infallible.…”

Section: Morningstar and The Benefits Of Using Its "Star" Rating Systemmentioning

confidence: 99%

Using Morningstar’s Analytical Measures to Evaluate Investment Recommendations Made by Consumer Reports

Chang¹,

Krueger²

2013

IJEF

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Instead of its typical analysis of automobiles and household gadgets, Consumer Reports ventured into the murky world of predicting investments performance in 2005 and 2007. Enough time has passed since these recommendations to conduct a rigorous investigation of Consumer Reports' success. This study analyzes recommendations through examination of return, risk, and risk-adjusted return using the popular Morningstar ratings. Consumer Reports' choices will be judged in relationship to mutual funds in the same category and index funds. It appears as though Consumer Reports provided a valuable service to its investing readership both times.

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Star Power: The Effect of Morningstar Ratings on Mutual Fund Flows

Cited by 133 publications

References 4 publications

Seasonal Asset Allocation: Evidence from Mutual Fund Flows

Seasonal Asset Allocation: Evidence from Mutual Fund Flows

An Empirical Study on the Non-Linear Relationship between the Performance of Funds and the Cash Flows of Funds

Using Morningstar’s Analytical Measures to Evaluate Investment Recommendations Made by Consumer Reports

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