Correspondence: Vesa Puttonen, Helsinki School of Economics, and Arvo Value Asset Management Ltd., Runeberginkatu 22-24, Helsinki FI-00100, Finland. E-mail: vesa.puttonen@hse.fi

¹is currently working in Nordea Bank Segment Corporate, developing customer concepts and services for corporate customers.

²is currently at the Helsinki School of Economics. His areas of expertise include topics such as risk management, derivatives, mutual funds and behavioural finance. He is a chairman of the Board of Directors of HSE Executive Education and Arvo Asset Management.

³is currently an Associate Professor at Furman University in Greenville, SC, USA where he teaches finance. His areas of expertise include mutual funds and corporate governance.

Received 11 September 2006; Revised 11 September 2006.

Abstract

The Morningstar fund rating has been reported to affect mutual fund flows in the US markets. This paper finds that flow patterns in Finnish bank-managed funds are significantly different from the patterns in the US. Specifically, non-bank funds attract flows in a manner similar to the US markets, that is Morningstar ratings affect fund flows. In contrast, Finnish bank-managed funds do not exhibit the same relationship between star ratings and flows. The results suggest that in Finland, five-star Morningstar ratings are not regarded as highly as in the US, where good performance attracts significantly higher flows. More significantly, our findings demonstrate the importance of banks' distribution channels in the Finnish financial market.