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A good question to consider is why a particular strategy would be expected to continue to work in the future, and under what market conditions.
Sometimes, the rationale can be grounded in behavioral finance theories, such as structural cognitive biases and/or specific constraints financial markets operators may have (e.g. minimizing the tracking vis-à-vis a benchmark, or leverage constraints).
The performance may also be linked to the systematic compensation of a certain type of risk; in such a case it is worth considering whether the return for bearing the risk is priced attractively – and if it is, why certain traders are willing to pay such an attractive level.
Beyond academic risk premia, there are strategies which take…
