Academics accuse Morningstar of understating riskiness of bond funds
Relying on self-reported data has opened the financial services giant 'to manipulation' by fund managers
New York — A group of academic researchers has taken aim at Morningstar, the financial services giant, arguing the company is luring investors into unsuitable products by understating the riskiness of many of the funds it rates.
In a recent paper professors Huaizhi Chen, Umit Gurun and Lauren Cohen noted that Morningstar relies on self-reported summaries from US fixed income funds to come up with its scores. By cross-referencing those summaries with data that must be filed by law to the Securities and Exchange Commission, the researchers found that many funds told Morningstar they held more triple-A and double-A bonds than they actually did.