Morningstar's equity analysts have been providing investment recommendations (the stock star rating) since 2001, but how has the Morningstar Rating for stocks performed? And what is the typical experience investors had on a typical day when investing according to our ratings?
We recently published a study assessing the performance of our ratings through three lenses: a cross-sectional regression, an event study, and a portfolio approach. In summary, we find strong evidence using a statistical model that controls for the factors of market, size, value, and momentum effects (Fama-MacBeth cross-sectional regression) that Morningstar’s equity star ratings have been predictive of future stock returns. Our updated event study and equal-weighted portfolios approaches provided mixed evidence to support the claim that star ratings are predictive of future stock returns.