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Evaluating the Rating of Stiftung Warentest: How Good Are Mutual Fund Ratings and Can They Be Improved?
Author(s) -
Müller Sebastian,
Weber Martin
Publication year - 2014
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2011.00632.x
Subject(s) - rating system , business , german , agency (philosophy) , equity (law) , actuarial science , economics , political science , geography , philosophy , archaeology , epistemology , environmental economics , law
We test the abilities of the Stiftung Warentest fund rating system to predict future fund performance among German registered funds for six equity categories: Germany, Euro‐Zone, Europe, North America, Pacific and World. Stiftung Warentest is a consumer protection agency and a major provider of fund ratings in Germany. Our empirical analysis documents predictive abilities of the rating system. The reason is that measures of past performance are positively related to future performance in several of these markets, even after controlling for momentum. Measures of fund activity (e.g., Active Share) are also helpful to predict performance, in particular to identify likely future losers. Hence, they should be taken into consideration by consumers when selecting a fund and rating agencies when revising current rating methodologies.