Abstract
We examine two forward-looking mutual fund ratings: the analyst rating produced by human analysts and the quantitative rating generated by a machine learning technique. The analyst rating identifies outperforming funds, while the quantitative rating fails to do so—this difference is mostly due to the selection of analyst coverage. Moreover, the tone of the analyst report contains incremental soft information for predicting fund performance. Finally, retail investors do not follow analyst recommendations; instead, they chase the quantitative rating. Our results highlights the importance of mutual fund analysts in information production and implies a capital misallocation problem in mutual fund investment.
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