Can Competition Increase Profits in Factor Investing?

81 Pages Posted: 10 Jun 2019 Last revised: 6 Jul 2022

See all articles by Victor DeMiguel

Victor DeMiguel

London Business School

Alberto Martin-Utrera

Iowa State University

Raman Uppal

EDHEC Business School; Centre for Economic Policy Research (CEPR)

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Date Written: June 29, 2022


The increasing number of institutions exploiting factor-investing strategies raises concerns that competition may erode profits. We use a game-theoretic model to show that, while competition among investors exploiting a particular factor erodes profits because of the negative externality of their price impact on each other, competition to exploit other factors can increase profits from the first factor because of the positive externality from trading diversification (netting of trades across factors). We calibrate our model using the investment and profitability factors and find that competition to exploit the profitability factor leads to a 68% increase in the capacity and a 143% increase in the profit from the investment factor.

Keywords: capacity of quantitative strategies, crowding, price impact.

JEL Classification: G11, G12, G23, L11

Suggested Citation

DeMiguel, Victor and Martin-Utrera, Alberto and Uppal, Raman, Can Competition Increase Profits in Factor Investing? (June 29, 2022). Available at SSRN: or

Victor DeMiguel (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
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United Kingdom

Alberto Martin-Utrera

Iowa State University ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

Raman Uppal

EDHEC Business School ( email )

58 rue du Port
Lille, 59046

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

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