Measuring Crowding in Factor Investing Beyond Volume and Surveys

Summary

The document asks how to measure crowding in factor strategies using evidence beyond trading volume and fund manager surveys. The questioner has tried Sharpe ratios and dividend revision rates, but reports that these have only produced rough screening signals. It points readers toward research on crowding and capacity in factor based investing, and toward work on value and momentum across markets.

The only specific proposed lead in the answer is an MSCI white paper describing a factor crowding model. The answer does not explain the model’s inputs, construction, validation, or results, and its author says they have not yet reviewed it. As a result, this is a pointer to further reading rather than a developed measurement method. It offers no evidence for comparing candidate metrics or determining when a factor is crowded, so the cited research would need to be examined before drawing practical conclusions.

Key ideas

• The question seeks crowding measures that go beyond volume data and manager surveys.
• Sharpe ratios and dividend revision rates are described as rough screens rather than reliable standalone measures.
• Research on factor capacity and value and momentum provides context for the problem.
• The answer points to an MSCI factor crowding model without describing or evaluating it.

Tags

# Crowding in factor investing; Solid metrics


# Crowding in factor investing; Solid metrics












I know this is a bit of a golden goose question as if someone had cracked it they'd be laughing.

I'm wondering though, if anyone can point me in the right direction for any hard measures of crowding that have been devised above and beyond pure volume data or fund manager surveys? I have tried bringing in some Sharpe ratios and dividend revision rates but nothing seems to click beyond it being a quick screen.

Point of interest for me and I can't seem to quite crack any reliable measures.

Example starting literature I've been over;

Overcrowding and capacity in factor-based investing: Should we be worried?

> https://www.lgim.com/web_resources/lgim-thought-leadership/Files/Market_Insights_Overcrowding_and_Capacity_FBI_April_2018_umbrella.pdf

Value and Momentum Everywhere

> Asness, Clifford S. ; Moskowitz, Tobias J. ; Pedersen, Lasse Heje Journal of Finance, June 2013, Vol.68(3), pp.929-985

## Answer by J-F (score 0, accepted)

https://quant.stackexchange.com/a/41255

MSCI recently put out a white paper on a factor crowding model. Haven't had time to go through it yet but it might just be what you're looking for (link below).

https://www.msci.com/documents/10199/acf506d5-4254-b85f-e213-eaef95661970

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.