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Cloning mutual fund returns

Author

Listed:
  • Auer, Benjamin R.
  • Schuhmacher, Frank
  • Niemann, Sebastian

Abstract

Motivated by the increasing competition between traditional mutual funds and highly accessible exchange traded funds (ETFs), we analyze the potential of the latter to replicate the returns of the former. In a penalized big data regression setup, we find that clone portfolios perform remarkably well both in sample and out of sample. However, depending on the investment style of a targeted mutual fund, a rather large number of ETFs can be required for cloning.

Suggested Citation

  • Auer, Benjamin R. & Schuhmacher, Frank & Niemann, Sebastian, 2023. "Cloning mutual fund returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 31-37.
    • Handle: RePEc:eee:quaeco:v:90:y:2023:i:c:p:31-37
    DOI: 10.1016/j.qref.2023.04.006
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    More about this item

    Keywords

    Mutual funds; Exchange traded funds; Replication; Least absolute shrinkage and selection operator;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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