A model of emulation funds

Authors

Zhe Chen, Capital Markets CRC Limited Sydney, Macquarie University, University of New South Wales
F Douglas Foster, University of Technology
David R. Gallagher, Macquarie University, Capital Markets CRC Limited, University of New South WalesFollow
Adrian Lee, University of Technology, Sydney

RIS ID

118854

Publication Details

Chen, Z., Foster, F. Douglas., Gallagher, D. R. & Lee, A. D. (2015). A model of emulation funds. Accounting and Finance, 55 (3), 717-748.

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.