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Hedge Fund Investment Through Piecewise Linear Regression and Optimization

15 Pages Posted: 27 Mar 2007  

Fei Pan

Purdue University - Krannert School of Management

Bo Zeng

Purdue University

Date Written: September 8, 2007

Abstract

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

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

Fei Pan

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

HOME PAGE: http://panfei.googlepages.com

Bo Zeng (Contact Author)

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

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