It is a new year and the underperformance of many alternative risk premia strategies in 2018 is now an old memory. Good performance heals past return wounds. While well-constructed alternative risk premia should not be highly correlated to market beta, they will be related to the investment regime. Risk premia are time varying.
The risk-on sentiment of January permeates the return behavior of these indices. Carry strategies in credit, currency, and rates all did well given their correlation with “good times”. Momentum underperformed in many asset classes on the large sentiment reversal. The losers of last month turned into January winners. Levered small firms did well while low volatility and beta trailed other equity strategies. The return behavior of alternative risk premia showed consistency.
There is some selection bias with the construction of the HFR risk premia indices based on the set of banks who report their risk premia indices, but the indices do provide investors general information on risk premia return trends by asset class. Alternative risk premia can be good hedge fund substitutes and a simple way to diversify market risk at attractive cost.
Running on a treadmill is one of my least favorite activities: you expend a lot of energy but end up exactly where you started, only out of breath. So far in 2026, financial markets are behaving similarly. There’s intense activity, but the major indices have gone almost nowhere. As of mid-February, the S&P 500 is […]
Investors face many choices when selecting investments. Historically, the main divide was between fundamental and technical trading. The growth of computer systems for trading has introduced a potentially larger variable that will only increase as AI advances, whether in systematic (rules-based) or discretionary (human judgment) trading. In just my 20 years working in the industry, […]
Is AI the next step in the evolution of trading? History proves new tools storm the markets, then high adoption erases their edge. What can futures trading history teach us about AI’s trajectory? The 1980s: Rise of Rules-Based Trading Building on simple regression models that aimed to identify patterns across sectors, the 1980s showed that […]