PT  - JOURNAL ARTICLE
AU  - Hector Chan
AU  - Tony Tan
TI  - Crowding and Liquidity Shocks
AID  - 10.3905/jpm.2022.1.448
DP  - 2023 Jan 31
TA  - The Journal of Portfolio Management
PG  - 36--61
VI  - 49
IP  - 3
4099  - https://pm-research.com/content/49/3/36.short
4100  - https://pm-research.com/content/49/3/36.full
AB  - 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–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–short equity factors. When liquidity shocks (such as the 2007 quant crisis or the more recent 2020 COVID-19–induced quant deleverage) occur, crowded strategies indeed tend to underperform.