Swing Pricing and Fragility in Open-end Mutual Funds

Dunhong Jin, Marcin Kacperczyk, Bige Kahraman and Felix Suntheim

No 2019/227, IMF Working Papers from International Monetary Fund

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 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: 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 (search for similar items in EconPapers)
Pages: 46
Date: 2019-11-01
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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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