Investors and financial analysts have been interested in measuring investment performance. In Korea, the industry has focused almost exclusivery on total return. But total return is incomplete measure of the performance of investment funds because it ignors risks. A risk-adjusted performance measure provides a solution to the moral hazard problem inherent in total return based compensation schemes.
This paper estimates the various risk-adjusted performance measures of mutual funds in Korea from the end of 1998 to October 1999. The results show that, the most funds have outperformed the market during the sample period, using Sharpe ratio, Treynor ratio, Jensen's Alpha, Fama's net selectivity, and Risk adjusted return on capital (RAROC).