Mutual Fund Age and Morningstar Ratings

Abstract

The study reported here identified an age bias in the Morningstar mutual fund ratings. I found that the average overall star ratings of seasoned funds are consistently - and in many cases, significantly - higher than the average overall star ratings of younger funds. This bias is not the result of a survivorship bias but of the methodology Morningstar uses to calculate the ratings. If star ratings affect fund flows, then this age bias in the Morningstar ratings is of significance to the mutual fund industry and to investors.