The Impact of Crowding in Alternative Risk Premia Investing

Financial Analysts Journal, vol. 75, no. 3 (Third Quarter 2019)

29 Pages Posted: 17 Apr 2019 Last revised: 9 Aug 2019

See all articles by Nick Baltas

Nick Baltas

Imperial College Business School; Goldman Sachs International

Date Written: March 18, 2019

Abstract

Crowding is a major concern for investors in the alternative risk premia space. By focusing on the distinct mechanics of various systematic strategies, we contribute to the discussion with a framework that provides insights on the implications of crowding on subsequent strategy performance. Understanding such implications is key for strategy design, portfolio construction, and performance assessment. Our analysis shows that divergence premia, like momentum, are more likely to underperform following crowded periods. Conversely, convergence premia, like value, show signs of outperformance as they transition into phases of larger investor flows.

Keywords: Crowding, Alternative Risk Premia, Divergence, Convergence

JEL Classification: G11, G12, G14

Suggested Citation

Baltas, Nick, The Impact of Crowding in Alternative Risk Premia Investing (March 18, 2019). Financial Analysts Journal, vol. 75, no. 3 (Third Quarter 2019). Available at SSRN: https://ssrn.com/abstract=3360350

Nick Baltas (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom

Goldman Sachs International

Peterborough Court
133 Fleet Street
London, EC4A 2BB
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
999
Abstract Views
3,110
rank
22,034
PlumX Metrics