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Zooming In on Equity Factor Crowding

Author

Listed:
  • Valerio Volpati

    (CEA - Commissariat à l'énergie atomique et aux énergies alternatives)

  • Michael Benzaquen

    (LadHyX - Laboratoire d'hydrodynamique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

  • Zoltán Eisler
  • Iacopo Mastromatteo

    (SISSA / ISAS - Scuola Internazionale Superiore di Studi Avanzati / International School for Advanced Studies)

  • Bence Tóth
  • Jean-Philippe Bouchaud

    (CFM - Capital Fund Management - Capital Fund Management)

Abstract

Crowding is most likely an important factor in the deterioration of strategy performance, the increase of trading costs and the development of systemic risk. We study the imprints of crowding on both anonymous market data and a large database of metaorders from institutional investors in the U.S. equity market. We propose direct metrics of crowding that capture the presence of investors contemporaneously trading the same stock in the same direction by looking at fluctuations of the imbalances of trades executed on the market. We identify significant signs of crowding in well known equity signals, such as Fama-French factors and especially Momentum. We show that the rebalancing of a Momentum portfolio can explain between 1-2% of order flow, and that this percentage has been significantly increasing in recent years.

Suggested Citation

  • Valerio Volpati & Michael Benzaquen & Zoltán Eisler & Iacopo Mastromatteo & Bence Tóth & Jean-Philippe Bouchaud, 2020. "Zooming In on Equity Factor Crowding," Post-Print hal-02567503, HAL.
    • Handle: RePEc:hal:journl:hal-02567503
    Note: View the original document on HAL open archive server: https://hal.science/hal-02567503
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    Cited by:

    1. Eyal Neuman & Moritz Vo{ss}, 2021. "Trading with the Crowd," Papers 2106.09267, arXiv.org, revised Mar 2023.
    2. Jean-Philippe Bouchaud, 2021. "Radical Complexity," Papers 2103.09692, arXiv.org.

    More about this item

    Keywords

    crowding; equity factors; momentum; market microstructure;
    All these keywords.

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