Could morningstar sustainability rating be an indicator for downside protection?

Abstract

This study investigates whether the Morningstar Sustainability Rating indicates the downside protection for the 2018 Global stock market downturn and 2020 Stock market crash by using daily time-series analysis and investigate whether fund characteristics have an effect on performance of each Morningstar Sustainability Rating by using a panel data analysis at a quarterly frequency for the active equity mutual fund in the US market.

This paper finds the neutral performance in every group of ratings in any market period according to the neutral alpha or abnormal return and the fund characteristics influence the fund performance pattern which can observe that the better rating’s fund tend to have the better performance which can indicate that the better Morningstar Sustainability Rating provides the less downside risk in the crisis period.