Extended Viewer

Research Insight - Lost in the Crowd? Identifying and Measuring Crowded Strategies and Trades

AUTHORS: Mehmet K. Bayraktar, Stuart Doole, Altaf Kassam, Stan Radchenko

The “quant meltdown” of August 2007 and the subsequent unfolding of the global financial crisis highlighted the risks of crowded investment strategies. The rapid growth of smart beta indexes and their use in ETFs has added to the need for scrutiny. In this Research Insight, we propose a set of four key metrics (our “Crowding Scorecard”) for monitoring and detecting the crowding risk of any particular investment strategy, building on our innovative analysis of historical behaviors of investment strategies and the MSCI equity risk models incorporating Systematic Equity Strategies (SES).