Towards a Macroprudential Framework for Investment Funds: Swing Pricing and Investor Redemptions

Ulf Lewrick and Jochen Schanz

International Journal of Central Banking, 2023, vol. 19, issue 3, 229-267

Abstract: How effective are available policy tools in managing systemic liquidity risks in the mutual fund industry? We assess one such tool—swing pricing—which allows funds to adjust their settlement price in response to large flows. A global game guides our empirical analysis. Consistent with its predictions, we show that during normal market conditions swing pricing dampens outflows in reaction to weak fund performance by mitigating investor first-mover advantages. Yet during episodes of market stress, swing pricing fails to contain redemption pressures despite supporting fund returns. This calls for adjusting swing pricing rules to achieve macroprudential objectives.

JEL-codes: C72 G01 G23 G28 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2023:q:3:a:6

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