The Morningstar Mirage

Reversion to the mean as evidenced by Morningstar mutual-fund ratings. Mean reversion is a logical consequence of the so-called efficient market hypothesis (cf. https://en.wikipedia.org/wiki/Efficient-market_hypothesis).

A Wall Street Journal analysis of Morningstar mutual-fund ratings over 14 years found that top-rated funds drew the vast majority of investor dollars, but most didn’t continue performing at that level.

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