A Model of Emulation Funds

32 Pages Posted: 3 Sep 2015

See all articles by Zhe Chen

Zhe Chen

Acadian Asset Management; University of New South Wales (UNSW); Centre for International Finance and Regulation (CIFR)

F. Douglas Foster

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

David R. Gallagher

Rozetta Institute

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate); Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

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

Suggested Citation

Chen, Zhe and Foster, F. Douglas and Gallagher, David R. and Lee, Adrian D., A Model of Emulation Funds (September 2015). Accounting & Finance, Vol. 55, Issue 3, pp. 717-748, 2015. Available at SSRN: https://ssrn.com/abstract=2655180 or http://dx.doi.org/10.1111/acfi.12067

Zhe Chen (Contact Author)

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

University of New South Wales (UNSW)

Kensington
High St
Sydney, NSW 2052
Australia

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

F. Douglas Foster

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

David R. Gallagher

Rozetta Institute ( email )

Sydney

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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