Crowded Trades and Tail Risk

When investors hold similar positions, their trades can become crowded—and difficult to unwind together. Using hedge fund holdings, we measure crowdedness by dividing the aggregate position in each stock by its average daily trading volume. We then sort U.S. equities into five portfolios, from least to most crowded.

The data include monthly equal-weighted and value-weighted returns for all five portfolios, along with the crowdedness high-minus-low (HML) factor—the return on the most crowded portfolio minus the least crowded portfolio.

Crowdedness risk factor data · Published article ↗ · SSRN paper ↗

Crowdedness returns, April 2004–December 2017. Top: annualized mean returns for five portfolios. Bottom: compounded High-minus-Low factor indices starting at 100, on a logarithmic y-axis. Equal-weighted solid bright blue ends at 332.21; value-weighted dashed bright red ends at 142.93. Gray shading marks the December 2007–June 2009 U.S. recession.

Suggested citation
Brown, Gregory, Philip Howard, and Christian Lundblad. 2022. “Crowded Trades and Tail Risk.” Review of Financial Studies 35 (7): 3231–3271.