Is the rating given to a European mutual fund a good indicator of its future performance?

The objective of this paper is to investigate whether the rating of a fund is a determinant of its future performance. This study focuses on the Fundclass ratings for a sample of 1,452 EU funds with a similar style of management for the period 2003–12 (a period marked by economic crisis). By using the methodology of non-stationary panel data, we simultaneously assess the long- and short-term relationship between fund performance and scoring, using a vector error correction model. Our results conclude that there is a positive relationship between these two variables over time. Nevertheless, in the short term, this relationship is only valid for the period 2007–12, especially for funds with a good rating.