Morningstar Ratings, Mutual Fund Flows and Performance : Investigating the Swedish Domestic Fund Market

Detta är en Master-uppsats från KTH/Skolan för industriell teknik och management (ITM)

Sammanfattning: Morningstar ratings are a popular way for investors to compare mutual funds. This thesis focuses on Swedish domestic equity funds. The relation of Morningstar ratings and fund flows was studied. Additionally, the short-term performance predictability using star ratings was investigated. This study found that top rated funds using Morningstar ratings received a higher fraction of positive fund flows compared to top rated funds ranked using past returns, Sharpe ratio, or Carhart's four-factor alpha. This provides some evidence towards Swedish investors using Morningstar ratings over other measures when selecting mutual funds. Additionally, all four measures performed poorly when used to predict one-, three- and twelve-month future fund flows, with no model being able to explain more than 7% of the variance in the data (measured in adjusted R-squared). Finally, the predictive power of Morningstar rating in respect to future outperformance (measured in Carhart's four-factor alpha) was evaluated. While all star ratings were statistically significant predictors, no model managed to explain more than 17% of the data's variance. Thus, Morningstar ratings were not found to be a good predictor of future outperformance.

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