The idea of comparing the performance of different risky investments for example investment
funds on a quantitative basis dates back to the beginnings of the asset management industry
and has been an important field of research in finance since then. Performance measures serve
as valuable quantitative evidence for the portfolio manager's performance as well as for the
evaluation of investment decisions ex post. Based on the idea of the capital asset pricing
model proposed by Treynor Sharpe and Lintner Treynor developed the first quantitative
performance measure intended to rate mutual funds the Treynor Ratio. Since then a large
number of performance measures with very different characteristics have been developed. In
addition to their power of rating investments ex post their ability to predict future
performance has been thoroughly analyzed by Grinblatt & Titman Brown & Goetzmann Carhart and
others. Besides academia the driving force behind the development of more sophisticated
performance measures has always been the investors. This is understandable as the truly poor
managers are afraid the unlucky managers will be unjustly condemned and the new managers have
no track record. Only the skilled (or lucky) managers are enthusiastic. By combining and
applying the results of previous research to a new sample of nearly 10 000 mutual funds that
invest in different countries and asset classes this thesis clarifies its central research
question: Is the Information Ratio a useful and reliable performance measure? In order to
answer this central question it has been split up into the following sub-parts: What are the
characteristics of a useful and reliable performance measure? What actually is good
performance? Is the good performance a result of luck or of skilled decisions and does it
persist over time? How does the Information Ratio compare to other performance measures and
what are its strengths and weaknesses? This empirical study aims at answering all of these
questions and provides a framework for performance evaluation by use of the Information Ratio.
