Alternative risk premium - A liquidity choice continuum

Alternative risk premia can be categorized along a liquidity continuum into two major groups. At one extreme are liquidity providers which are risk aversion strategies, and at the other extreme are the liquidity takers which are based behavioral premia.  

The risk aversion strategies are negatively convex or convergent strategies that underperform during market extremes. The behavioral premia are positively convex and like market divergences. The behavioral premia are often associated with market anomalies caused by behavioral biases which should not last. Behavioral biases associated with trend or momentum need liquidity given they will buy into strength and sell into weakness. Risk aversion strategies will buy into markets where there is higher risk aversion. In these cases, investors will be compensated for skewness or risk from expected extremes. 

Investors who believe there is a greater likelihood for market divergences must act early with buying behavioral premia because the liquidity costs will be higher if you buy late. Risk aversion investor must make the judgement that markets will be or remain calm. Negative market moves will generate underperformance. The choice is a play on uncertainty which impacts liquidity.