Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/220044
Authors: 
van Kralingen, Marc
Garlaschelli, Diego
Scholtus, Karolina
van Lelyveld, Iman
Year of Publication: 
2020
Series/Report no.: 
Tinbergen Institute Discussion Paper TI 2020-007/II
Abstract: 
Crowded trades by similarly trading peers influence the dynamics of asset prices, possibly creating systemic risk. We propose a market clustering measure using granular trading data. For each stock the clustering measure captures the degree of trading overlap among any two investors in that stock. We investigate the effect of crowded trades on stock price stability and show that market clustering has a causal effect on the properties of the tails of the stock return distribution, particularly the positive tail, even after controlling for commonly considered risk drivers. Reduced investor pool diversity could thus negatively affect stock price stability.
Subjects: 
crowded trading
tail-risk
financial stability
JEL: 
G02
G14
G20
Document Type: 
Working Paper

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