@article {Chan36, author = {Hector Chan and Tony Tan}, title = {Crowding and Liquidity Shocks}, volume = {49}, number = {3}, pages = {36--61}, year = {2023}, doi = {10.3905/jpm.2022.1.448}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The authors develop a model whose aim is to study the relationship between crowding and liquidity shocks. One of the main results of that model is that crowding is associated with a larger exposure to broader liquidity shocks on arbitrageurs. The authors confirm this link empirically by studying equity long{\textendash}short strategies. They use short interest data both to identify liquidity shocks impacting sophisticated equity investors and to infer crowdedness for some of the well-known long{\textendash}short equity factors. When liquidity shocks (such as the 2007 quant crisis or the more recent 2020 COVID-19{\textendash}induced quant deleverage) occur, crowded strategies indeed tend to underperform.}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/49/3/36}, eprint = {https://jpm.pm-research.com/content/49/3/36.full.pdf}, journal = {The Journal of Portfolio Management} }