Comparison Between Morningstar Ratings and Traditional Performance Measures Ratings

We compare Morningstar ratings and ratings obtained using the same methodology of rating attribution with a set of commonly used performance measures. We study three types of investment horizons : 3-year, 5-year and 10-year ratings. Our analysis focuses on Open-End US Mutual Funds available in Morningstar Direct Database from which we create three sets of 16,617, 13,505 and 7,992 funds corresponding respectively to the three investment horizons analyzed. Our results show that Morningstar ratings are very close ( correlation around 80%) to ratings obtained with Sharpe's alpha, Jensen's alpha, Four-factor alpha and Excess returns.