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A model of emulation funds

Author

Listed:
  • Zhe Chen
  • F. Douglas Foster
  • David R. Gallagher
  • Adrian D. Lee
  • Steven Cahan

Abstract

type="main" xml:id="acfi12067-abs-0001"> 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.

Suggested Citation

  • Zhe Chen & F. Douglas Foster & David R. Gallagher & Adrian D. Lee & Steven Cahan, 2015. "A model of emulation funds," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(3), pages 717-748, September.
  • Handle: RePEc:bla:acctfi:v:55:y:2015:i:3:p:717-748
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    References listed on IDEAS

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