PGIM Quantitative Solutions seeks to help solve complex investment problems with custom systematic solutions across the risk/return spectrum.
What Hamilton Has To Teach Us About Today's Markets
By now, you’ve undoubtedly heard the expression that something is, or was, a “crowded trade.” Perhaps you’ve even used it to characterize an investment. The words “a crowded trade” conjure up a vivid image of hordes of investors crushed into an already packed space. Although colorful and evocative, the expression is both confusing and ill-defined. Not surprisingly, it’s been used to characterize a wide variety of phenomena from overpriced stocks to momentum crashes. This paper attempts to better define the expression “a crowded trade” via a simple allegory: Hamilton tickets.
Hamilton — Popular, but Uncrowded
Hamilton is a hit Broadway musical about the life and death of Alexander Hamilton, set to hip-hop. Tickets for each performance are limited. There is only one ticket for each of the 1,319 available seats. All tickets are held — either by the public, or by the theater box office. Savvy theater patrons and scalpers generally obtaintickets directly from the box office at face value — between $179 and $199 for most seats. Others, however, must turn to a secondary market for tickets. The play’s radical take on the Founding Fathers myth has been a smash hit, and tickets command an often sizable premium over face value (peaking at over $1,900/ticket in mid-2016). These are obtained via resales by original holders, or by speculators who bought them at lower prices. Despite its popularity, Hamilton is never “crowded.” That’s because only ticket holders can enter the theater, and every ticket holder is assigned a seat. For Hamilton, at least, a high pricedoesn’t correlate with crowds.
Loading PDF