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Crowded Trades: An Overlooked Systemic Risk for Central Clearing Counterparties


  • Albert J. Menkveld

    (VU University Amsterdam, the Netherlands)


Counterparty default risk might hamper trade and trigger a financial crisis. The introduction of a central clearing counterparty (CCP) benefits trading but pushes systemic risk into CCP default. Standard risk management strategies at CCPs currently overlook a risk associated with crowded trades. This paper identifies it, measures it, and proposes a margin methodology that accounts for it. The application to actual CCP data illustrates that this hidden risk can become large, in particular at times of high CCP risk.

Suggested Citation

  • Albert J. Menkveld, 2014. "Crowded Trades: An Overlooked Systemic Risk for Central Clearing Counterparties," Tinbergen Institute Discussion Papers 14-065/IV/DSF75, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20140065

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    References listed on IDEAS

    1. Dimitrios Bisias & Mark Flood & Andrew W. Lo & Stavros Valavanis, 2012. "A Survey of Systemic Risk Analytics," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 255-296, October.
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    Cited by:

    1. Yang, Chunpeng & Zhou, Liyun, 2016. "Individual stock crowded trades, individual stock investor sentiment and excess returns," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 39-53.
    2. Yannick Armenti & Stéphane Crépey, 2017. "Central Clearing Valuation Adjustment," Working Papers hal-01169169, HAL.
    3. Liyun Zhou & Chunpeng Yang, 2019. "Differences in the effects of seller-initiated versus buyer-initiated crowded trades in stock markets," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(4), pages 859-890, December.
    4. Paul Glasserman & Ciamac C. Moallemi & Kai Yuan, 2016. "Hidden Illiquidity with Multiple Central Counterparties," Operations Research, INFORMS, vol. 64(5), pages 1143-1158, October.
    5. Bruno, Salvatore & Chincarini, Ludwig B. & Ohara, Frank, 2018. "Portfolio construction and crowding," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 190-206.
    6. Yannick Armenti & St'ephane Cr'epey, 2015. "Central Clearing Valuation Adjustment," Papers 1506.08595,, revised Feb 2017.

    More about this item


    Financial economics;

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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