We present evidence that equity momentum strategies are partially driven by positive-feedback trading intermediated via the mutual fund sector. We identify a U.S.-specific structural break to this channel that substantially weakened the relationship between fund flows and past style returns. As...

We show that mutual fund ratings generate correlated demand that creates systematic price fluctuations. Mutual fund investors chase fund performance via Morningstar ratings. Until June 2002, funds pursuing the same investment style had highly correlated ratings. Therefore, rating-chasing...

Rational investors should account for risk factor exposure when allocating capital to mutual funds. Two recent influential studies use mutual fund flows to test whether investors distinguish between performance driven by managers' skill and systematic risk factors. Both studies found that...

We show that a June 2002 reform in Morningstar's mutual fund rating methodology led to substantial drop in the profitability of momentum-related asset pricing factors. Before the reform, funds pursuing the same investment style had correlated ratings heavily influenced by recent style...

We present causal evidence that non-fundamental correlated demand exerts a first-order impact on style returns. Mutual fund investors chase fund performance via Morningstar ratings, regardless of the rating methodology. Until June 2002, ratings depended on fund returns without any style...

Mutual funds hold 32% of the U.S. equity market and comprise 58% of retirement savings, yet retail investors consistently make poor choices when selecting funds. Theory suggests that poor choices are partially due to mutual fund managers creating unnecessarily complex disclosures and fee...

We show that mutual fund ratings generate correlated demand that creates systematic price fluctuations. Mutual fund investors chase fund performance via Morningstar ratings. Until June 2002, funds pursuing the same investment style had highly correlated ratings. Therefore, rating-chasing...