|
|||||
|
|
A model of emulation funds |
|
| Authors: | Zhe Chen F. Douglas Foster David R. Gallagher Adrian D. Lee |
| Affiliation: | 1. Macquarie Graduate School of Management, North Ryde, NSW, Australia;2. Capital Markets CRC Limited, Sydney, NSW, Australia;3. Centre for International Finance and Regulation, Sydney, NSW, Australia;4. UTS Business School, University of Technology, Sydney, NSW, Australia;5. Australian School of Business, The University of New South Wales, Sydney, NSW, Australia |
| Abstract: | Emulation funds are a potentially cost‐effective way for multimanager funds to improve their investment performance by delaying and netting trade signals from underlying managers. We develop a model to represent the expected sources of differential performance in an emulation fund relative to its underlying multimanager portfolio. The model formalises the expected interaction between potential savings and opportunity costs and allows us to observe complexities in the emulation process that are hidden without a benchmark. Finally, the functional representation of the model allows sensitivity analysis of the emulation fund to key parameters and enables us to determine theoretically optimal lag periods. |
| Keywords: | Multimanager Fund‐of‐funds Transaction costs Emulation funds |