Do Mutual Fund Ratings Provide Valuable Information for Retail Investors? : Empirical Evidence on Ratings Non-Persistence and the Risk of Mutual Fund Closure
Faculty/Professorship: | Finance |
Author(s): | Oehler, Andreas ![]() ![]() |
Publisher Information: | Bamberg : opus |
Year of publication: | 2015 |
Pages: | 29 |
Year of first publication: | 2014 |
Language(s): | English |
Licence: | German Act on Copyright |
URN: | urn:nbn:de:bvb:473-opus4-257688 |
Abstract: | Retail investors use information provided by mutual fund rating agencies to make investment decisions. Using hand-collected data on Morningstar’s mutual fund ratings we examine the rating migration and closure risk of mutual funds from 2005 to 2012. We differentiate between buy-and-hold investment strategies and dynamic investment strategies. To assess the information content of mutual fund ratings for buy-and-hold investment strategies, we determine the rating migration based on the first and the last mutual fund rating during two-, four-, six-, and eight-year horizons. With respect to dynamic investment strategies, we calculate the number of rating changes per fund during these time horizons on a monthly basis. We find that mutual fund rating persistence is low or even inexistent in particular during longer time periods. Only for lower-rated funds the rating appears to indicate higher risk of fund closure. In addition, mutual funds face a large number of up to 38 monthly rating changes in the eight-year window. Overall, due to the extensive rating migration and the high number of monthly rating changes, we conclude that retail investors barely benefit from using mutual fund ratings. |
Type: | Workingpaper |
URI: | https://fis.uni-bamberg.de/handle/uniba/21201 |
Year of publication: | 20. January 2015 |
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Oehler_et_al_Do_Mutual_Fund_Ratings_Provide_Valuable_InformationseA1b.pdf | 761.96 kB | View/Open |

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University of Bamberg