Ratings-Driven Demand and Systematic Price Fluctuations

Itzhak Ben-David, Jiacui Li, Andrea Rossi, Yang Song

Research output: Contribution to journalReview articlepeer-review

5 Scopus citations


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 investors directed capital into winning styles, generating style-level price pressures, which reverted over time. In June 2002, Morningstar reformed its methodology of equalizing ratings across styles. Style-level correlated demand via mutual funds immediately became muted, significantly altering the time-series and cross-sectional variation in style returns.

Original languageEnglish (US)
Pages (from-to)2790-2838
Number of pages49
JournalReview of Financial Studies
Issue number6
StatePublished - Jun 1 2022


  • G11
  • G24
  • G41

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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