The measurement of investment performance has always been a main concern for managers and investors. While the profit and loss of investment could be clearly seen, the performance of investment fund is not easily determined due to a key factor that people have different acknowledgement toward risk. In most cases, Sharpe index is widely used by investors. Most performance indices assume that returns follow normal distribution. When return distribution is not normally distributed, the index will not be theoretically correct. This paper tests the normal distribution assumption for Taiwan Hi-Tech mutual funds, we find return of our sample mutual funds in sample period follow the normal distribution, so an application of traditional performance index is not inappropriate. This paper includes an application of Value-at-Risk to the performance evaluation of Taiwan Hi-Tech mutual funds and we reach the following conclusions: 1. When return is a positive, VaR-based performance index is indeed effective in evaluating the mutual funds performance. When return is negative, the index will become biased. 2. Substituting benchmark relative market return for risk-less return and benchmark relative market VaR for original market VaR can compare funds? performance in different markets. 3. To test performance index correlation, our test results display high positive correlation. 4. In back testing, delta-normal approach performs better than historical simulation approach, but it still shows model risk.
