15 Pages Posted: 27 Mar 2007
Date Written: September 8, 2007
It is conjectured that the size of a hedge fund has some impact on its return. In this paper, we investigate the relationship between them and apply the results to construct an investment model. We first implement a learning algorithm to construct a piecewise linear regression model which shows that a fund's AUM (Asset Under Management) has different effects in different situations on its return. Then, with consideration of the various scenarios, we propose a robust optimization model to maximize the expected profit. Finally, we present the computational results that illustrate the strength of our two-stage procedure.
Keywords: hedge fund, piecewise linear regression, portfolio optimization
JEL Classification: C44, C45
Suggested Citation: Suggested Citation
Pan, Fei and Zeng, Bo, Hedge Fund Investment Through Piecewise Linear Regression and Optimization (September 8, 2007). Available at SSRN: https://ssrn.com/abstract=974421 or http://dx.doi.org/10.2139/ssrn.974421