Bringing you live news and features since 2006 


Findings in Lyxor’s latest research uncover the potential extreme risks of betting against the market


Lyxor Asset Management’s latest Research White Paper analyses the risk/return profile of dynamic investment strategies, specifically those implemented by hedge funds.

The paper seeks to answer the questions: how is it possible for funds that have performed consistently to tumble in just a few months? Are these brutal reversals only attributable to market factors or are certain investment behaviours also to blame? Note that so-called extreme risks refer to the possibility of infrequent but important losses.

Lyxor’s research shows that strategies that bet against the market are generally exposed to extreme risks, whereas strategies that follow market trends offer a more contained risk profile. To illustrate this, the White Paper looks at the mechanisms by which such widespread investment strategies as Dollar Cost Averaging (DCA) or the systematic search for Entry Points may lead to bankruptcy if associated risks are not identified and contained.

Lyxor conducted a systematic analysis of investment strategies as applied to a single underlying asset. Dynamic strategies were classified as either trend-following or contrarian. The results revealed the extent to which these groups have opposite risk characteristics. Contrarian strategies (e.g. purchasing assets when prices are going down) do have the potential for high profits, but are, in return, exposed to extreme risks in an adverse market scenario. To mitigate this, it is necessary to set strict stop loss limits or other mechanisms to reduce positions once a given loss level is reached. Conversely, our research shows that strategies that following market trends may offer more moderate profit potential, but also more limited exposure to extreme risk. In practice, trend-following strategies such as those used by CTA (Commodity Trading Advisor) funds reacted remarkably well to the 2008 crisis.

Latest News

ETF data consultant ETFGI reports that assets invested in the global ETF industry reached a new record of USD12.71 trillion..
Calastone has published an ETF white paper which examines several of the processes that take place across the lifecycle of..
Adapting product lines to fit into changing methodologies and meet shifting demand is essential to remaining relevant in the industry..
Investors urgently need greater access to diversified investment strategies aligned with the Paris Agreement on climate change if the world..

Related Articles

Taylor Krystkowiak, Themes ETFs
Themes ETFs opened its doors in December 2023, with an introductory suite of 11 ETFs – seven thematic and four...
Konrad Sippel, Solactive
At the end of March, financial index specialist, Solactive, published its 2024 annual report on future trends.  ...
Lorraine Sereyjol-Garros, BNP Paribas
Following changes to the French Monetary and Financial Code and of the French market authority AMF’s General Regulation, it is...
Ed Rosenberg, Texas Capital
Texas Capital Bank first opened its doors back in December 1998 and nowadays offers wealth-management services, as well as commercial,...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by