Zooming In on Equity Factor Crowding

7 Pages Posted: 5 Feb 2020

See all articles by Valerio Volpati

Valerio Volpati

Capital Fund Management

Michael Benzaquen

Ecole Polytechnique, Palaiseau; Capital Fund Management

Zoltan Eisler

Capital Fund Management

Iacopo Mastromatteo

Capital Fund Management

Bence Toth

Capital Fund Management

Jean-Philippe Bouchaud

Capital Fund Management

Date Written: January 13, 2020

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

Volpati, Valerio and Benzaquen, Michael and Eisler, Zoltan and Mastromatteo, Iacopo and Toth, Bence and Bouchaud, Jean-Philippe, Zooming In on Equity Factor Crowding (January 13, 2020). Available at SSRN: https://ssrn.com/abstract=3518404 or http://dx.doi.org/10.2139/ssrn.3518404

Valerio Volpati

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Michael Benzaquen (Contact Author)

Ecole Polytechnique, Palaiseau ( email )

Route de Saclay
Palaiseau, 91128
France

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Zoltan Eisler

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Iacopo Mastromatteo

Capital Fund Management ( email )

France

Bence Toth

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Jean-Philippe Bouchaud

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

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