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Discussion Paper
The Chen-Tindall system and the lasso operator: improving automatic model performance
Using U.S. monthly macroeconomic data, the automatic model system presented in Chen and Tindall [2016] outperforms the lasso automatic system, but the lasso is improved where Bayesian model averaging is employed to combine its forecasts with those from autoregressive schemes. The best performance is obtained using Bayesian model averaging to combine the Chen?Tindall system, the lasso, and autoregressive schemes. Performance is virtually the same using this combined approach where the elastic-net operator is substituted for the lasso. Similar overall outcomes are found for France and Germany ...
Discussion Paper
Hedge Fund Return Prediction and Fund Selection: A Machine-Learning Approach
A machine-learning approach is employed to forecast hedge fund returns and perform individual hedge fund selection within major hedge fund style categories. Hedge fund selection is treated as a cross-sectional supervised learning process based on direct forecasts of future returns. The inputs to the machine-learning models are observed hedge fund characteristics. Various learning processes including the lasso, random forest methods, gradient boosting methods, and deep neural networks are applied to predict fund performance. They all outperform the corresponding style index as well as a ...