Wed, Jan 24, 2018
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. Opalesque Exclusive: Statsure Financial launches captive insurer for hedge funds[more]

    Bailey McCann, Opalesque New York: Hedge fund managers have a new option for protecting their business. Launching this week at the annual MFA Conference, Statsure Financial is offering a captive insurance solution for hedge fund managers. Many large companies have captive insurers - insurance

  2. U.S. economy, inflation and alternative investments to dominate 2018 markets, says family office Wilmington Trust[more]

    Komfie Manalo, Opalesque Asia: The emergence of a late-cycle economy in the U.S., the mystery of inflation and growth from a domestic and global perspective, and the potential for alternative investments to prosper against a backdrop of rich valuations, low yields, and higher volatility are the t

  3. Performance - Some hedge funds deliver double-digit gains for 2017, Brevan Howard's hedge fund suffers biggest annual loss in 2017, Crispin Odey's flagship hedge fund plummeted about 20% in 2017, Profits fall 90% at ex-Morgan Stanley banker's hedge fund, Fannie-Freddie overhaul might mint hedge fund riches, losses[more]

    Some hedge funds deliver double-digit gains for 2017 From Reuters/Investing.com: A handful of hedge funds ended 2017 with double digit returns, their investors said, at a time the $3 trillion industry took in fresh money and posted its best returns in years, industry data show. Act

  4. Investing - Hedge funds start 2018 with record $19 billion bet on the euro, Hedge fund Kora Management invests in Satin Creditcare[more]

    Hedge funds start 2018 with record $19 billion bet on the euro From Reuters.com: Hedge funds have kicked off 2018 with their biggest bet ever on the euro rising, a clear vote of confidence in the single currency but, with positioning so stretched, one which could backfire in the near ter

  5. News Briefs - Mobius to retire from Franklin Templeton, Authorities decrypt smart phone of Princeton grad charged with killing Manhattan hedge fund dad, Investigators seize (more) antiques from hedge-fund billionaire Michael Steinhardt's collection[more]

    Mobius to retire from Franklin Templeton Emerging markets pioneer Mark Mobius will be stepping down as executive chairman of the Templeton Emerging Markets Group (TEMG) and formally retire from Franklin Templeton on 31 January. He will also be relinquishing his post as portfolio manager