Swing Pricing and Fragility in Open-end Mutual Funds

Marcin Kacperczyk, Dunhong Jin, Bige Kahraman and Felix Suntheim

No 13929, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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 stabilizing effect is internalized particularly by institutional investors and investors with longer investment horizons. 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.

Keywords: Liquidity mismatch; Fund runs; Fragility; Swing pricing; Strategic complementarity (search for similar items in EconPapers)
JEL-codes: G10 G2 G23 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Swing Pricing and Fragility in Open-End Mutual Funds (2022)
Working Paper: Swing Pricing and Fragility in Open-end Mutual Funds (2019)
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