Abstract
We use forward-looking Morningstar Analyst Ratings to infer a distribution of expected abnormal returns (alphas) for mutual funds. We benchmark analysts' expectations against expectations obtained from an estimation of a rational model of fund performance. Compared with the rational learner, we find a larger dispersion in analysts' expectations, that analysts' expectations increase less with perceived managerial skill, and that analysts' expectations increase --- as opposed to decrease --- with fund size. The median industry alpha is negative, whereas the value-weighted alpha is positive, indicating that analysts believe that the industry is too large in terms of the number of funds but too small in terms of total assets.