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Is Rating Associated with Better Retail Funds’ Performance in Changing Market Conditions?

Author

Listed:
  • Richard Louth

    (Corpus Christi College, University of Cambridge)

  • Stephen Satchell

    (Trinity College, University of Cambrifge)

  • Warapong Wongwachara

    (TMB Analytics, TMB Bank PLC)

Abstract

This paper investigates the impact of ratings on the performance of retail funds from four non-overlapping equity fund universes – Europe excluding UK, UK Growth, USA, and Global – over the period between 30th September 2003 and 31th December 2009. The main difference between our study and previous research is that our analysis was conducted on qualitative, not quantitative, ratings. We employ a range of techniques in order to capture the potentially diverse nature of the linkages between rating and performance, including long-run returns, return persistence, and volatility: Cross-sectional; historical; and dynamic (model-based). A particular attention is paid to the susceptibility of fund performance in times of changing market conditions, i.e. bull and bear markets. Overall, we find evidence that rated funds outperform their not rated counterparts, especially in bear markets.

Suggested Citation

  • Richard Louth & Stephen Satchell & Warapong Wongwachara, 2014. "Is Rating Associated with Better Retail Funds’ Performance in Changing Market Conditions?," Bankers, Markets & Investors, ESKA Publishing, issue 132, pages 4-24, September.
    • Handle: RePEc:rbq:journl:i:132:p:4-24
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    More about this item

    Keywords

    Fund Ratings; Retail Funds; Performance Persistence; Regime Switching;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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