Abstract
The purpose of this paper is to analyse the impact upon tracking errors (TEs) of time lags in the calculation of fund of funds (FoF) net asset value (NAV). We examine how microstructure effects produce noise in the NAV of FoF and therefore noise in the TE. For that, we use simulations to calculate FoF NAVs at different closing dates. We then compare series of TEs to analyse the impact of time lags and formalise a relation adjusting the TE including error terms in the ratio.
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1 Christine Louargant is an assistant professor of finance and accounting at the University Paul Verlaine of Metz and researcher in Grefige-Ceremo. Her main research interests are financial risks, exchange rate dynamics and financial markets.
2 Luc Neuberg is Managing Director of Fortis Investments Luxembourg and Risk Manager of Fortis Multi-Management. His research area concerns financial risks, asset allocation and agent-based modelling.
3 Virginie Terraza is an assistant professor of finance at the University of Luxembourg and researcher in Luxembourg School of Finance (LSF). Her principal research centres relate to the analysis of the financial risks, portfolio management and financial econometrics.
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Louargant, C., Neuberg, L. & Terraza, V. Time lags in fund of funds. J Deriv Hedge Funds 12, 190–199 (2006). https://doi.org/10.1057/palgrave.dutr.1850039
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DOI: https://doi.org/10.1057/palgrave.dutr.1850039