IMF Working Papers Volume 2019 Issue 227: Swing Pricing and Fragility in Open-end Mutual Funds (2019)

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Swing Pricing and Fragility in Open-end Mutual Funds

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Dunhong Jin

Dunhong Jinnull

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Marcin Kacperczyk

Marcin Kacperczyknull

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Bige Kahraman

Bige Kahramannull

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, and

Felix Suntheim

Felix Suntheimnull

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Series:: IMF Working Papers

Volume/Issue:: Volume 2019: Issue 227

Publication Date:: 01 Nov 2019

DOI:: https://doi.org/10.5089/9781513518336.001

ISBN:: 9781513518336

ISSN:: 1018-5941

Pages:: 46

Keywords:: WP; swing pricing; pricing rule; fund investor; adjustment factor; liquidity mismatch; fund runs; fragility; strategic complementarity; pricing mechanism; Liquidity risk; Flow of funds; Mutual funds; Corporate bonds; Price structures; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2019: Issue 227

Language:: English

Publication Date:: 01 Nov 2019

DOI:: https://doi.org/10.5089/9781513518336.001

ISBN:: 9781513518336

ISSN:: 1018-5941

Pages:: 46

Keywords:: WP; swing pricing; pricing rule; fund investor; adjustment factor; liquidity mismatch; fund runs; fragility; strategic complementarity; pricing mechanism; Liquidity risk; Flow of funds; Mutual funds; Corporate bonds; Price structures; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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