The predictive abilities and persistence of Morningstar ratings: an examination of real estate mutual funds

摘要

This study examines the predictive abilities of Morningstar ratings with respect to the future relative performance of real estate mutual funds. It also looks at the persistence of the rating system. Morningstar ratings and real estate mutual fund returns are analysed over the five-year period 2003 to 2007. The measures of future performance are raw returns and two Jensen's alpha models. We find some weak evidence that Morningstar predicts the relative performance of real estate mutual funds when measured as raw returns. However, when returns are adjusted using the Fama-French three-factor model with momentum, we find no evidence that Morningstar ratings provide reliable guidance regarding future real estate mutual fund performance.