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Ratings-Driven Demand and Systematic Price Fluctuations / Itzhak Ben-David, Jiacui Li, Andrea Rossi, Yang Song.
- Format:
- Book
- Author/Creator:
- Ben-David, Itzhak.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w28103.
- NBER working paper series no. w28103
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We show that mutual fund ratings generate correlated demand that creates systematic price fluctuations. Mutual fund investors chase fund performance via Morningstar ratings. Until June 2002, funds pursuing the same investment style had highly correlated ratings. Therefore, rating-chasing investors directed capital into winning styles, generating style-level price pressures, which reverted over time. In June 2002, Morningstar reformed its methodology of equalizing ratings across styles. Style-level correlated demand via mutual funds immediately became muted, significantly altering the time-series and cross-sectional variation in style returns.
- Notes:
- Print version record
- November 2020.
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