Back in June, MSCI published a research report titled, "Lost In The Crowd? Identifying And Measuring Crowding Strategies And Trades". The report discussed the issue of crowding risk, and the effects it could have on an investment strategy.
Indeed, the rapid growth of “smart beta” indexes and their use in ETFs, has increased the risk of overcrowding for some investment instruments. As a result, accounting for crowding risk in any investment strategy is important because it may a substantial portion of strategy risk and performance during certain periods, especially during times of excessive market volatility.
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"Crowded trades refer to trading activity involving a significant number of market participants with large pools of capital who trade in and out of stock positions in order to...
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