---
title: A Model of Price Impact and Fire Sales in Crowded Trades
url: https://www.ml-quant.com/papers/ssrn/7638998/
site: ML-Quant (https://www.ml-quant.com)
updated: 2026-10-23
license: Summaries CC BY 4.0; links go to the original sources
index: https://www.ml-quant.com/llms.txt
identifier: SSRN 7638998
source_url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7638998
featured: 2026-10-23
citations: unknown
topic: Portfolio & Allocation
---


# A Model of Price Impact and Fire Sales in Crowded Trades

A model of factor crowding shows that forced exits amplify shocks up to sixfold and shift crowding costs from average returns into tail losses.

- Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7638998
- Identifier: SSRN 7638998
- Released: 2026-10-20
- First featured: Quant Letter No. 136 (2026-10-23): https://www.ml-quant.com/issues/2026-10-23/
- Citations (Semantic Scholar): not tracked
- Published in: not yet
- Topic: Portfolio & Allocation
- Authors: Ludwig B. Chincarini

## Related

- [Cost-aware Portfolios in a Large Universe of Assets](https://www.ml-quant.com/papers/arxiv/2412.11575/): Research suggests portfolio models that include transaction costs, highlighting the importance of considering these costs when rebalancing a portfolio.
- [Portfolio Optimization under Transaction Costs with Recursive Preferences](https://www.ml-quant.com/papers/arxiv/2402.08387/): The Merton investment-consumption problem is expanded to incorporate transaction costs and stochastic differential utility, using new math techniques to understand all parameter combinations and previously difficult aspects.
- [Dynamic Programming for Value-at-Risk Markov Decision Processes in Continuous Spaces](https://www.ml-quant.com/papers/arxiv/2610.24439/): The paper establishes validity of dynamic programming equations for Value-at-Risk objectives in continuous state and action spaces, enabling optimal execution problems with VaR goals.
- [Optimal Trading Filters and the Value of Predictive Signals](https://www.ml-quant.com/papers/arxiv/2610.24558/): Wiener-Hopf factorization yields optimal trading filters for return forecasts under transient price impact, showing fractional filters and the value of mean-reversion timing for signals.
- [Factor Timing with Transaction Costs](https://www.ml-quant.com/papers/ssrn/7634558/): A strategy dynamically allocating across 50 smart-beta factors based on past returns and covariances significantly outperforms static allocation even with transaction costs included.
- [Multiperiod bond portfolio optimization with transaction costs using a Markov Decision process](https://www.ml-quant.com/papers/arxiv/2609.38765/): The study develops a Markov decision process framework for dynamic bond portfolio management that balances yield and interest-rate risk subject to transaction costs.