Crowded Trades, Market Clustering, and Price Instability

51 Pages Posted: 5 Feb 2020

See all articles by Marc van Kralingen

Marc van Kralingen

Aegon N.V

Diego Garlaschelli

Leiden University

Karolina Scholtus

Erasmus University Rotterdam (EUR)

Iman van Lelyveld

De Nederlandsche Bank; VU University Amsterdam

Multiple version iconThere are 2 versions of this paper

Date Written: January 24, 2020


Crowded trades by similarly trading peers influence the dynamics of asset prices, possibly creating systemic risk. We propose a market clustering measure using granular trading data. For each stock the clustering measure captures the degree of trading overlap among any two investors in that stock. We investigate the effect of crowded trades on stock price stability and show that market clustering has a causal effect on the properties of the tails of the stock return distribution, particularly the positive tail, even after controlling for commonly considered risk drivers. Reduced investor pool diversity could thus negatively affect stock price stability.

Keywords: crowded trading, tail-risk, financial stability

JEL Classification: G02, G14, G20

Suggested Citation

van Kralingen, Marc and Garlaschelli, Diego and Navickaite, Karolina and van Lelyveld, Iman, Crowded Trades, Market Clustering, and Price Instability (January 24, 2020). De Nederlandsche Bank Working Paper No. 668, Available at SSRN: or

Marc Van Kralingen

Aegon N.V ( email )


Diego Garlaschelli

Leiden University ( email )

Postbus 9500
Leiden, Zuid Holland 2300 RA

Karolina Navickaite

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

Iman Van Lelyveld (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB

VU University Amsterdam ( email )


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