Same factor. Three crashes. Each one took out the crowd that bought the last twelve months.
Momentum is the cleanest test case because the screen is the easiest to copy. The literature has the same name for the same trade. The flows arrive after the win year. The unwind arrives after the flows.
Three momentum crashes . peak to trough
Post GFC junk rally
Mar . Apr2009
-28pct
COVID rotation
Mar . Jul2020
-21pct
Crowding unwind
Feb . Apr2025
-19pct
Each episode followed a multi quarter run where the factor topped league tables and absorbed inflows. Citations . Daniel and Moskowitz 2016 Journal of Financial Economics on momentum crashes plus the Indian momentum cohort 20Y read referenced in the 11 May factor primer.
Why a crowded factor decays
26pct
Median post publication decay in factor returns . McLean and Pontiff 2016
Tested 97 anomalies from the academic literature. Out of sample returns fell by roughly a quarter once the paper was published. Once a factor has a name, more capital runs it. More capital narrows the spread.
5x
Top quintile fund attracts roughly five times the inflows per point of out performance vs the bottom quintile losing the same amount. Sirri and Tufano 1998.
~30x
Illustrative growth in Indian momentum strategy AUM 2018 to 2025. Every win year invites the next cohort. The next cohort writes the next exit.
The screen that picked the 60 percent year is sitting on every other investor's tab tonight. That is what crowding is. Not a personality flaw. A flow mechanic. Same trade, same crowd, same exit. The recency buyer is by definition the last buyer.
Numbers illustrative for the Indian retail context. McLean and Pontiff 2016 covers US equity anomalies and the 26 pct figure is the median post publication decay in factor return. Sirri and Tufano 1998 published in Journal of Finance documents the convex flow performance relationship in US mutual funds. Indian flow-performance work (Anagol Kim Anantha 2020) finds a directionally similar convex shape. Past performance . backtest only . not a guarantee.