Governance Matter: Morningstar Stewardship Grades and Mutual Fund Performance

Governance Matter: Morningstar Stewardship Grades and Mutual Fund Performance

Mutual fund investors have the arduous task of disentangling luck from ability of mutual fund managers’ performance. In this paper we investigate the role of mutual fund corporate governance (measured by Morningstar Stewardship grade) in mutual fund performance. We propose an objective data-driven c...

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Bibliographic Details
Main Authors: CAO, Jerry X., GHOSH, Aurobindo, GOH, Jeremy, NG, Wee Seng
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2014
Subjects:
Mutual fund performance
Corporate Governance
Stewardship Grades
Star Rating
mutual fund ratings
predictive
principal component
Granger Causality
Corporate Finance
Finance and Financial Management
Online Access:https://ink.library.smu.edu.sg/soe_research/1609
https://ink.library.smu.edu.sg/context/soe_research/article/2608/viewcontent/gradesmatter_011114a.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:Mutual fund investors have the arduous task of disentangling luck from ability of mutual fund managers’ performance. In this paper we investigate the role of mutual fund corporate governance (measured by Morningstar Stewardship grade) in mutual fund performance. We propose an objective data-driven corporate governance score based on principal components of Morningstar Stewardship Grades. Furthermore, we establish corporate governance scores have Granger Causality on long-term risk-adjusted returns. The findings suggest that corporate governance grades of mutual funds carry information content beyond the usual star rating measures for predicting long-term mutual fund performance and provide an effective tool for selecting funds.

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