Mon, Nov 24, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: A new approach for measuring crowded trades in financial markets

Monday, February 01, 2010

This article was written by Dr. Momtchil Pojarliev, new senior portfolio manager at U.S.-based asset manager Hathersage, and by Richard M. Levich, professor of finance at New York’s Stern School of business – it was also published on Voyeu.org.

Regulators understand the potential threat of crowded trades, but they also recognise the difficulty of tracking them. This column suggests a new approach for regulators to monitor crowdedness of selected trades. Fund managers and financial regulators could use data on crowdedness to assess the risk that a financial market may enter an asset bubble.

Whether crowded trades pose a threat to financial institutions has been on regulators’ minds for several years. In 2004, Timothy Geithner, then President of the Federal Reserve Bank of New York, put it this way: “While there may well be more diversity in the types of strategies hedge funds follow, there is also considerable clustering, which raises the prospect of larger moves in some markets if conditions lead to a general withdrawal from these ‘crowded’ trades.” The underlying logic of Geithner’s remarks is simple enough. Market participants may face additional risks if many players want to exit similar positions at the same time. Lasse Heje Pederson (2009) has modelled this behaviour in financial markets. When shouts of “fire” are heard in a crowded theatre, patrons face ......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Regulatory - Stringent rules for hedge funds make the financial system fragile[more]

    From FT.com: …It is one thing to impose a regulatory burden when there is a clear need to do so. Banks are underwritten by taxpayers via deposit insurance as well as the too-big-to-fail safety net; they need to be reined in, and if they shrink as a result, that may be welcome. But it is another thin

  2. Investing - Apple: Hedge funds are crazy about it, Greenlight Capital took stake in Citizens Financial after IPO, Tiger Global added to Hertz, exited Dollar General last quarter, Oberweis sells NQ Mobile stake as Valiant adds shares, Whitney Tilson sticks to losing bet on MagicJack shares, Brigade Capital backs €90m Quinn sale[more]

    Apple: Hedge funds are crazy about it From Techinsider.net: Apple Inc. is still the most popular stocks among hedge funds. According to a recent report by hedge fund tracking site Insider Monkey, more than one out of 5 hedge funds are invested in Apple Inc. At the moment there are

  3. Greenlight Re CEO says hedge fund reinsurance strategy buzz is validating[more]

    From Artemis.bm: The attention being paid to the hedge fund reinsurance business model and the fact that others are now looking to leverage bits of it within their own strategies, is validating for reinsurer Greenlight Capital Re, according to CEO Bart Hedges. There has been an increasing buzz

  4. Legal - Hedge fund manager fights £8m tax tribunal ruling[more]

    From FT.com: A hedge fund manager who may have to repay £8m in tax is trying to overturn a tribunal ruling that found he had attempted to shelter millions in an avoidance scheme. Patrick Degorce, chief investment officer at Theleme Partners, lost a tax tribunal case last year. HM Revenue & Customs c

  5. Europe - Hedge funds face exit tax as Iceland central bank discusses plan[more]

    From Bloomberg.com: Hedge funds and other creditors with claims against Iceland’s failed banks face an exit tax as the island looks for ways to unwind capital controls without hurting the economy. The government targets having a plan it can present by year-end that would map out how Iceland will sca