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

Morningstar, Inc., has been hailed in both academic and practitioner circles as having the most influential rating system in the mutual fund industry. We investigate Morningstar’s influence by estimating the value of a star in terms of the asset flow it generates for the typical fund. We use event-study methods on a sample of 3,388 domestic equity mutual funds from November 1996 to October 1999 to isolate the “Morningstar effect” from other influences on fund flow...