search query: @author Sharpe, W. F. / total: 9
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| Author: | Sharpe, W. F. |
| Title: | Morningstar's risk-adjusted ratings |
| Journal: | Financial Analysts' Journal
1998 : JUL/AUG, VOL. 54:4, p. 21-33 |
| Index terms: | Credit Portfolio management Unit trusts Investments Policy Risk USA |
| Language: | eng |
| Abstract: | The characteristics of the risk-adjusted rating (RAR) on which Morningstar bases its star ratings and category ratings are analyzed. The RAR is compared with more traditional mean-variance measures. The RAR measure has characteristics similar to those of an expected utility function based on an underlying bilinear utility function. Strict adherence to maximizing expected utility with such a function could lead to extreme investment strategies. In the study, it is found that Morningstar varies one of the parameters of this function in a manner that frequently produces results similar to the results of using the excess-return Sharpe ratio. The argument is presented that neither Morningstar's measure nor the excess-return Sharpe ratio is an efficient tool for choosing mutual funds within peer groups for a multifund portfolio. |
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