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Portfolio construction and crowding

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  • Bruno, Salvatore
  • Chincarini, Ludwig B.
  • Ohara, Frank

Abstract

We use industry data to investigate how the crowding of an equity space develops due to the portfolio construction process in the equity asset management sector. We find crowding can be reduced by slightly altering the risk management process. We also find that crowding in the financial system could be lower if the distribution of risk model usage amongst portfolio managers was more diversified.

Suggested Citation

  • Bruno, Salvatore & Chincarini, Ludwig B. & Ohara, Frank, 2018. "Portfolio construction and crowding," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 190-206.
    • Handle: RePEc:eee:empfin:v:47:y:2018:i:c:p:190-206
    DOI: 10.1016/j.jempfin.2018.02.003
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    References listed on IDEAS

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    Cited by:

    1. Marc van Kralingen & Diego Garlaschelli & Karolina Scholtus & Iman van Lelyveld, 2020. "Crowded trades, market clustering, and price instability," Tinbergen Institute Discussion Papers 20-007/II, Tinbergen Institute.
    2. Chincarini, Ludwig, 2020. "Tracking spot oil: The elusive quest," Journal of Commodity Markets, Elsevier, vol. 17(C).
    3. Chincarini, Ludwig B. & Moneta, Fabio, 2021. "The challenges of oil investing: Contango and the financialization of commodities," Energy Economics, Elsevier, vol. 102(C).
    4. Zhou, Liyun & Yang, Chunpeng, 2019. "Stochastic investor sentiment, crowdedness and deviation of asset prices from fundamentals," Economic Modelling, Elsevier, vol. 79(C), pages 130-140.

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    More about this item

    Keywords

    Risk management; Crowding; Herding; Crowded spaces; Copycat trading; Quantitative equity portfolio management; Optimal portfolios;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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