Mutual Fund Age and Morningstar Ratings

This study investigates the relationship between the age of mutual funds and their Morningstar ratings. Using 37 different Morningstar data disks, we find and document an age bias in the Morningstar ratings. Specifically, we find that funds that are ten years or older systematically receive higher average star ratings than younger funds as a result of a weighting system that makes it more difficult for the star ratings of seasoned funds to decline. Also, similar to Blume (1998), we document that younger funds ratings are more variable than those of older funds. If we are to believe that star ratings affect fund flows, then this relationship of age and ratings is of significance to the mutual fund industry and to investors