A Demand-Based Equity Risk Factor: Crowdedness

Utilizing data extracted from 13F reports of US institutional investors, the authors formulate a novel demand-based equity risk factor termed crowdedness. Derived by consolidating the holdings of active investors, crowdedness demonstrates notable statistical significance over time, minimal correlation with established factors, and consistent and resilient risk-adjusted returns. In terms of portfolio risk analysis, quintile portfolios sorted by crowdedness showcase robust performance. During the Covid period, the most crowded portfolio exhibits elevated exposure to value stocks and is focused on sectors such as IT, software, and biotechnology. Furthermore, they illustrate practical applications of crowdedness in risk management by analyzing real portfolios.