Crowding and tail risk in momentum returns

Pedro Barroso, Roger M. Edelen, Paul Karehnke*

*Autor correspondente para este trabalho

Resultado de pesquisarevisão de pares

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' demands. 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.

Idioma originalEnglish
Páginas (de-até)1313-1342
Número de páginas50
RevistaJournal of Financial and Quantitative Analysis
Volume57
Número de emissão4
DOIs
Estado da publicaçãoPublished - 3 jun 2022

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