The Impact of Crowding in Alternative Risk Premia Investing

Crowding is a major concern for investors in alternative risk premia. By focusing on the distinct mechanics of various systematic strategies, this study introduces a framework that provides insights into the implications of crowding for subsequent strategy performance. Understanding such implications is key for strategy design, portfolio construction, and performance assessment. The analysis shows that divergence premia, such as momentum, are more likely to underperform following crowded periods. Conversely, convergence premia, such as value, show signs of outperformance as they transition into phases of larger investor flows.

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