Crowding and tail risk in momentum returns

Detalhes bibliográficos
Autor(a) principal: Barroso, Pedro
Data de Publicação: 2020
Outros Autores: Edelen, Roger M., Karehnke, Paul
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10400.14/37608
Resumo: Several theoretical studies suggest that coordination problems can cause arbitrageur crowding to push asset prices beyond fundamental value as investors feedback trade on each others' emands. Using this logic we develop a crowding model for momentum returns that predicts tail risk when arbitrageurs ignore feedback effects. However, crowding does not generate tail risk when arbitrageurs rationally condition on feedback. Consistent with rational demands, our empirical analysis generally finds a negative relation between crowding proxies constructed from institutional holdings and expected crash risk. Thus our analysis casts both theoretical and empirical doubt on crowding as a stand-alone source of tail risk.
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spelling Crowding and tail risk in momentum returnsCrowded tradeDestabilizeMomentum tradingInstitutional investorsCrash riskSeveral theoretical studies suggest that coordination problems can cause arbitrageur crowding to push asset prices beyond fundamental value as investors feedback trade on each others' emands. Using this logic we develop a crowding model for momentum returns that predicts tail risk when arbitrageurs ignore feedback effects. However, crowding does not generate tail risk when arbitrageurs rationally condition on feedback. Consistent with rational demands, our empirical analysis generally finds a negative relation between crowding proxies constructed from institutional holdings and expected crash risk. Thus our analysis casts both theoretical and empirical doubt on crowding as a stand-alone source of tail risk.SSRNVeritati - Repositório Institucional da Universidade Católica PortuguesaBarroso, PedroEdelen, Roger M.Karehnke, Paul2022-05-17T12:35:39Z2020-10-012020-10-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.14/37608enginfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-07-12T17:43:05Zoai:repositorio.ucp.pt:10400.14/37608Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T18:30:38.175059Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv Crowding and tail risk in momentum returns
title Crowding and tail risk in momentum returns
spellingShingle Crowding and tail risk in momentum returns
Barroso, Pedro
Crowded trade
Destabilize
Momentum trading
Institutional investors
Crash risk
title_short Crowding and tail risk in momentum returns
title_full Crowding and tail risk in momentum returns
title_fullStr Crowding and tail risk in momentum returns
title_full_unstemmed Crowding and tail risk in momentum returns
title_sort Crowding and tail risk in momentum returns
author Barroso, Pedro
author_facet Barroso, Pedro
Edelen, Roger M.
Karehnke, Paul
author_role author
author2 Edelen, Roger M.
Karehnke, Paul
author2_role author
author
dc.contributor.none.fl_str_mv Veritati - Repositório Institucional da Universidade Católica Portuguesa
dc.contributor.author.fl_str_mv Barroso, Pedro
Edelen, Roger M.
Karehnke, Paul
dc.subject.por.fl_str_mv Crowded trade
Destabilize
Momentum trading
Institutional investors
Crash risk
topic Crowded trade
Destabilize
Momentum trading
Institutional investors
Crash risk
description Several theoretical studies suggest that coordination problems can cause arbitrageur crowding to push asset prices beyond fundamental value as investors feedback trade on each others' emands. Using this logic we develop a crowding model for momentum returns that predicts tail risk when arbitrageurs ignore feedback effects. However, crowding does not generate tail risk when arbitrageurs rationally condition on feedback. Consistent with rational demands, our empirical analysis generally finds a negative relation between crowding proxies constructed from institutional holdings and expected crash risk. Thus our analysis casts both theoretical and empirical doubt on crowding as a stand-alone source of tail risk.
publishDate 2020
dc.date.none.fl_str_mv 2020-10-01
2020-10-01T00:00:00Z
2022-05-17T12:35:39Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
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status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10400.14/37608
url http://hdl.handle.net/10400.14/37608
dc.language.iso.fl_str_mv eng
language eng
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dc.publisher.none.fl_str_mv SSRN
publisher.none.fl_str_mv SSRN
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
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repository.name.fl_str_mv Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
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