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, Xiaping Jerry, Ghosh, Aurobindo, GOH, Choo Yong, Jeremy, Ng, Wee Seng
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/soe_research/1719
https://ink.library.smu.edu.sg/context/soe_research/article/2718/viewcontent/gradesmatter_011114a.pdf
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Institution: Singapore Management University
Language: English
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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.