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 Strategy - Which strategies to privilege in an environment of extreme risk ?
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Which strategies to privilege in an environment of extreme risk ?

A convex strategy seems to better correspond to long-term investors in terms of preference structures, potentially ready to give up some of their earnings to avoid losses that would be difficult to handle from an emotional point of view...

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A recent article by B. Bruder & Nicolas Gaussel, entitled, « Risk-return analysis of Dynamic Investment Strategies » distinguishes in a conventional manner, but still interesting, the different investment strategies. Schematically, we can divide investors into two groups :
-Those who buy when the prices fall (Contrarian strategies / value)
-Those who buy when the prices rise (Trend-Following strategies / Momentum) The

The article states that each strategy profile can be decomposed into two components : a component called « optional profile» +/- and a component called « trading impact » (see table below).

Strategy Philosophy Optional Profile Trading Impact Hit ratio
Buy/ Reinforce when prices fall Contrarian / Value Concave Positive >=50%
Buy/ Reinforce when prices rise Trend-Following / Momentum Convex Negative