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Forum | Papers » The weight of risk in the Morningstar rating for mutual funds

The weight of risk in the Morningstar rating for mutual funds

Franesco Lisi
July-August 2010 - n°7/8
Jel codes: G24, C0

This paper proposes a method to evaluate if risk is adequately accounted for in the Morningstar rating system. The analysis is based on the comparison between the rating obtained ignoring the risk component and those obtained increasing the weight of risk and, in particular, for the level of risk currently used by the Morningstar rating. An application to 1763 Us equity mutual funds allows us to conclude that Morningstar accounts for risk only marginally and that risk is probably underestimated