Description:
The aim of this paper is to analyze the effect of mutual fund Ratings on performance, risk and net flow, and to examine whether there is performance persistence for mutual funds in Global Emerging Markets. The analysis is based on a sample retrieved from Morningstar Direct for the period 2000-2020. Our main results regarding performance show that average annual returns (both gross and net) and alpha are higher for the bestrated funds, specifically for the 5-Star mutual funds, even though these funds are the least risky. Moreover, this paper confirms that investors are making the right decision when they direct their investments to the best-rated mutual funds because they achieve a considerable return without increasing overall risk. Finally, by examining performance persistence using different methodologies, our primary findings corroborate that there is no performance persistence resulting from the previous year’s position in any of the performance metrics. However, using a period of three years, the results show that the best-rated funds in a 3-year window outperform the worst-rated funds in the following year for the 1-factor alpha, and gross and net returns, confirming how important Ratings are for predicting future performance