Investment Fund Valuation And Asset Allocation Based On Model Uncertainty

In the context of global economic markets showing low interest rates and low growth in the past two years,the entire investment market is also facing a shortage of high-quality investment assets.In addition,in the face of similar major events such as the continu-ous fluctuation of the US financial market and the coronavirus epidemic,for investors,what kind of investment can be done to achieve better asset preservation is an important issue.Related investment funds,especially hedge funds,private equity funds,have at-tracted widespread attention from investors due to their unique investment characteristics and relatively high returns.On the other hand,hedge funds and private equity funds have also become an important part of the global and China's financial markets.The size of investment funds is increasing annually.The related research on the valuation of invest-ment funds and asset allocation has also received widespread attention in the academic community.For investment participants,due to lack of information and other external reasons,there is a problem of model uncertainty in every strategy model.Therefore,on the basis of existing research on the valuation of alternative investments,this paper in-troduces model uncertainty,and mainly focuses on the impact of model uncertainty on investment fund valuation and investment asset allocation.The main research contents are as follows:First,examine the impact of model uncertainty on hedge fund investment valuation and investment leverage selection.It is assumed that the managers of hedge funds will worry about the model's investment strategy being set incorrectly,which will cause model uncertainty.We use entropy to measure model differences under different strategies,and use the method of maximizing the minimum value to obtain the optimal hedge fund in-vestment valuation and investment leverage selection under model uncertainty.The study found that model uncertainty will have a negative impact on hedge fund manager fees and investor valuations,and will increase the degree of risk aversion of hedge fund managers,and then choose a more conservative investment strategy.Subsequently,because the investment of hedge funds focused on the secondary se-curities market,mainly stocks,bonds and some risk-free assets.However,due to the systemic risk of the secondary market and the downward trend of the global economy since 2018,private equity invest in the equity of unlisted companies in the primary mar-ket,and then seek a reasonable exit mechanism in order to getting high returns is a good way to avoid risks for investors.In addition,due to the information asymmetry between limited partners(LP)and co-partners(GP)in private equity investments,LP will be skep-tical to GP's existing investment strategy,which leads to model uncertainty.Similar to the research on hedge fund situations,the same uses entropy to measure model differences under different strategies.The study in our dissertation found that model uncertainty will significantly reduce the LP's certainty-equivalent valuation.And on the other hand,model uncertainty will also make LP more risk-averse and choose a more conservative invest-ment strategy in liquid assets,which will reduce the holding of public equity in liquid assets and choose risk-free assets.Finally,as theoretical research proves that model uncertainty will affect the asset allocation of liquid assets in funds,will the model uncertainty be reflected in the more liquid investment market in practice?Considering the openness and availability of mutual fund market data,and the strong liquidity of mutual fund market transactions.The study found that investors will be ambiguity averse to investment beliefs in the face of model uncertainty and an uncertain investment environment as a whole,and will pay more atten-tion to the worst fund performance of mutual funds.The research proves that the model uncertainty exists in the Chinese mutual fund market,and will affect the investment asset selection of investors,and lays the foundation for further empirical research on the impact of model uncertainty on hedge funds and private equity funds.The research in this dissertation has the following contributions:1)Use theoretical models to characterize the investment valuation and asset allocation of related investment funds,and for the first time consider the issue of valuation between different investment funds.Under the background of the continuous development and transformation of today's financial markets,these study results can provide explanation and guidance for investment behavior in financial markets.2)For the first time,introduce model uncertainty into a continuous-time model of private investment valuation.It also considers the impact of model uncertainty on the investment valuation,asset allocation,manager and investor income valuation of different funds.To some extent,it makes up for the lack of research on model uncertainty.3)This paper analyzes the model uncertainty problem by studying the theoretical model,and also selects the Chinese mutual fund market for empirical research.From the perspective of theoretical and empirical research,the existence of model uncertainty in financial markets is proved.