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The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal Hardcover – July 31, 2012

4.9 out of 5 stars 55 customer reviews

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Editorial Reviews

From the Inside Flap

The financial markets are dangerously over-crowded. Investors follow popular trends or latch onto profitable new strategies with herd-like single-mindedness, and an increasingly globalized and interconnected world has only exacerbated the problem. The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal explores how the dramatic overcrowding we've seen over the last quarter century has yielded terrifying results, including the 2008 financial crisis that continues to reverberate around the globe.

The story of overcrowding as we know it now began in 1998, with the failure of the profoundly successful Long-Term Capital Management (LTCM) hedge fund. Exploring how this seemingly isolated event signaled a much larger problem within the financial industry, The Crisis of Crowding traces the story of LTCM and the subsequent hedge funds started by its founder, John Meriwether and his former partners, through the events of 2008, and up to the ongoing European debt crisis.

Part narrative, part quantitative analysis, the book is filled with firsthand recollections from those on the front lines of the crowding crisis, including several LTCM partners. Featuring insights from key banking and hedge fund authorities, it brings the events that led to the current crisis vividly to life, showing how and why the market has evolved in new and dangerous ways, and what can be done about it.

Much that should have been obvious after the fall of LTCM could have prevented the crises that followed. Instead, the problems of overcrowding went unchecked so that when the next economic disaster hit, increased leverage, policy mishaps, and an even more crowded trading space resulted in a far bigger collapse. We failed to learn our lesson the first time around, but that doesn't mean it's too late. Future economic crises are all but guaranteed, and The Crisis of Crowding reveals exactly what we need to know so we're prepared for next time.

From the Back Cover

"One of the lessons from the crisis, rarely discussed, are the problems caused by a crowded trading place. Chincarini takes the reader down a path not looked at by many analysts. An excellent read."

—JIMMY CAYNE, former CEO and Chairman of the Board of Bear Stearns

"The Crisis of Crowding is an excellent account of the financial crisis of 2008. This book has everything: an analysis of the trades, interviews with key players, and, most importantly, a simple, entertaining explanation of how we got into this mess. It stretches from the LTCM crisis in 1998 to the Greek crisis of 2012. Anyone who wants to know how our financial system works and how we can improve it should read this book."

—FRANK FABOZZI, Professor at EDHEC Business School and former Professor at the Yale School of Management

"Dr. Chincarini gives an engaging description of the various crises over the last decade and how they are connected. It's as if Chincarini were in the trading room taking notes as the crisis unfolded."

—KEN KRONER, Chief Investment Officer and head of the firm's scientific active equity business, BlackRock

"Do we need yet another book on the financial crisis? Yes, we do. Some books are fun to read, but leave you confused about what the actors actually did. Others give you a great deal of technical information, but can be a hard slog. This book by Ludwig Chincarini fills the middle. It is fun to read, and it tells you exactly who did what and how. Read, enjoy, and learn."

—OLIVIER BLANCHARD, Chief Economist at the IMF

"Chincarini's book, which combines a narrative style with an overview of economic fundamentals, should be on the reading list of anyone interested in the roots of our financial meltdown."

—AUSTAN GOOLSBEE, former Chairman of the Council of Economic Advisors to the President, Professor of Economics, University of Chicago

"Chincarini looks at the financial crises of the last fifteen years—starting with a comprehensive analysis of the LTCM crisis in 1998 and ending with the Euro-debt crisis of 2012—and argues convincingly that the central risk in these crises was accentuated from within the financial system rather than from external economic forces (it includes the best analysis I have read on the LTCM crisis). This bold new theory has important implications for both industry practices as well as for new regulations. This book should be required reading for anyone who wants to understand and help prevent future financial crises."

—ERIC ROSENFELD, cofounder of Long-Term Capital Management and JWMP

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Product Details

  • Hardcover: 512 pages
  • Publisher: Bloomberg Press; 1 edition (July 31, 2012)
  • Language: English
  • ISBN-10: 1118250028
  • ISBN-13: 978-1118250020
  • Product Dimensions: 6.5 x 1.6 x 9.4 inches
  • Shipping Weight: 1.8 pounds (View shipping rates and policies)
  • Average Customer Review: 4.9 out of 5 stars  See all reviews (55 customer reviews)
  • Amazon Best Sellers Rank: #440,518 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By David Merkel on August 28, 2012
Format: Hardcover
I am going to say something that I rarely say: I am grateful that this book was written. Why am I grateful?

* It highlights the idea that people, even really bright people, do not behave rationally, but imitatively -- they follow recent price action -- they mimic.
* It validates the concept of a "crowded trade," one that offered high returns in the past, may presently offer low returns to a "buy and hold" investor, but will deliver negative returns in the near future, because the holders of the trade are relying on the trade to deliver positive returns in the short run, and will bail if it doesn't happen.
* It points up the nonlinearity of markets, and invalidates the efficient markets hypothesis; it validates the concept of the boom-bust cycle both in micro and macro.
* It teaches us to not take on too much debt, even if we are really, really smart. We aren't as smart as we think we are.
* In short, it sums up a lot of my philosophy at The Aleph Blog. Real risk control thinks long term, and considers what will happen if liquidity dries up. Real risk control knows that large positions in any asset relative to the market must be regarded to be "Buy-and-hold" regardless of what your trading intentions are. False risk control assumes that markets always function, and that your relative size versus the market does not matter.

The author of the book has led a storied life. He was a quantitative analyst hired to work in risk control for Long Term Capital Management [LTCM] near its inception, and continued with them through the failure. After that, he worked for Rydex, built FOLIOfn, and worked for the Bank of International Settlements, and Schroders.
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Format: Kindle Edition Verified Purchase
Good and detailed into the workings of the financial world.

The content is great, however be aware that the layout and reading experience is very different in the Kindle and the Hardcover versions.

I bought the Kindle version and that was the first time I have regretted the Kindle version.
I do not know how they could mishandle the layout so badly.

However I bought the hardcover as a gift for a friend and that lives up to the content.
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Format: Hardcover Verified Purchase
The author tells an excellent story about financial crisis from its background to its aftermath while educating readers about important knowledges of finance. Many details are covered, yet the concepts are straight forward. The book is nice for people who know some finance to have a good time walking through what was going on during 2008 financial crisis, and it is excellent for those who have moderate financial background to learn, improve and be surprised by how the market reacts with the crowd.

The book does not simply show readers facts of the crisis or provide shallow opinions, however, it analyzes the reasons behind incidents and makes you think deeply about the market.

Human behaviors are hard to predict and the crisis of crowds has not been eliminated. However, we will definitely know much more about it after reading this book and hopefully we can avoid most of the losses if similar situation happens again.

I'm happy that I bought the book.
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Format: Hardcover Verified Purchase
Ludwig does a good job catering to a variety of readers with this book. While it certainly covers financial complexities deeper than I, someone not in the industry, can appreciate, he writes with a simple and structured style that allows one to skim past the overly-knotty parts and intersperses the book with material that the layperson can both comprehend as well as enjoy. Ludwig poses some interesting questions for thoughtful readers to mull over, and I enjoyed the book so much I enthusiastically lent it to a friend.
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Format: Hardcover Verified Purchase
i really think this is a great book, I purchased this book to focus on what happened in past financial crisis .what the true reason behind the crisis, I was not disappointed--stories in this book were excellently presented. Written in clear, precise prose (no theory obfuscation) and then illustrated with rigorous formulas and copious examples. I found this book make the complicated theory to a very simple way to understand. i really enjoy the time i spend on this book,The book is well organized; individual chapters can be read on a stand alone basis or a group of chapters taken together for a more comprehensive view. It's a volume that's exceptionally well suited for individuals with a solid grasp of fundamental analysis and a strong command of basic financial theories.highly recommend this book.
for financial student who also want to investigate in this area, there is another book related to this possibly also useful for you.
"Quantitative Equity Portfolio Management: An Active Approach to Portfolio Construction and Management (McGraw-Hill Library of Investment and Finance)"
Comment Was this review helpful to you? Yes No Sending feedback...
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Format: Hardcover
i really think this is a great book, I purchased this book to focus on what happened in past financial crisis .what the true reason behind the crisis, I was not disappointed--stories in this book were excellently presented. Written in clear, precise prose (no theory obfuscation) and then illustrated with rigorous formulas and copious examples. I found this book make the complicated theory to a very simple way to understand. i really enjoy the time i spend on this book,The book is well organized; individual chapters can be read on a stand alone basis or a group of chapters taken together for a more comprehensive view. It's a volume that's exceptionally well suited for individuals with a solid grasp of fundamental analysis and a strong command of basic financial theories.highly recommend this book.
for financial student who also want to investigate in this area, there is another book related to this possibly also useful for you.
"Quantitative Equity Portfolio Management: An Active Approach to Portfolio Construction and Management (McGraw-Hill Library of Investment and Finance)"
Comment Was this review helpful to you? Yes No Sending feedback...
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