The source is Aristotle's Poetics, presumably written around 335 BC. In the publicly accessible translation by F. A. Fyfe (Harvard University Press & Heinemann, 1932), the quote is in section 1452b of the Poetics (emphasis added):
Since then the structure of the best tragedy should be not simple but complex and one that represents incidents arousing fear and pity—for that is peculiar to this form of art—it is obvious to begin with that one should not show worthy men passing from good fortune to bad. That does not arouse fear or pity but shocks our feelings. Nor again wicked people passing from bad fortune to good. That is the most untragic of all, having none of the requisite qualities, since it does not satisfy our feelings or arouse pity or fear.
When Aristotle says that wicked people passing from bad fortune to good does not satisfy our feelings, he is most likely referring to our sense of poetic justice. In order to understand his rejection of tragedies about "worthy men passing from good fortune to bad", I think one should read on since Aristotle writes (emphasis added):
There remains then the mean between these. This is the sort of man who is not pre-eminently virt[u]ous and just, and yet it is through no badness or villainy of his own that he falls into the fortune, but rather through some flaw in him, he being one of those who are in high station and good fortune, like Oedipus and Thyestes and the famous men of such families as those. The successful plot must then have a single and not, as some say, a double issue; and the change must be not to good fortune from bad but, on the contrary, from good to bad fortune, and it must not be due to villainy but to some great flaw in such a man as we have described, or of one who is better rather than worse.
So the issue is not with downfalls as such but the cause of these downfalls: not simply bad fortune ("bad luck") but a flaw in the character itself. Since nobody is flawless, this is neither misanthropic nor belittling.