A theoretical model analysing investment funds’ liquidity management and policy measures

Margherita Giuzio, Michael Grill, Dominika Kryczka and Christian Weistroffer

Macroprudential Bulletin, 2021, vol. 12

Abstract: Large differences between the liquidity of investment funds’ assets and liabilities (i.e. liquidity mismatches) can create vulnerabilities in the financial system and expose funds to a risk of large outflows and sudden drops in market liquidity. From a macroprudential perspective, the current regulatory framework may not sufficiently address the risks stemming from liquidity mismatches in investment funds. By modelling the liquidity management of an open-ended fund, this article provides theoretical justification for pre-emptive policy measures such as cash buffers that enhance financial stability by helping to increase the resilience of investment funds. JEL Classification: G11, G23, G28

Keywords: Asset sales; Liquidity risk; Macroprudential policy; Open-ended funds; Run risk (search for similar items in EconPapers)
Date: 2021-04
Note: 3546207
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