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Swing Pricing and Fragility in Open-end Mutual Funds

The Review of Financial Studies, Forthcoming

71 Pages Posted: 8 Nov 2018 Last revised: 7 Jan 2021

See all articles by Dunhong Jin

Dunhong Jin

The University of Hong Kong - Faculty of Business and Economics; University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

Bige Kahraman

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR)

Felix Suntheim

International Monetary Fund (IMF) - Monetary and Capital Markets Department

Multiple version iconThere are 3 versions of this paper

Date Written: January 1, 2021

Abstract

How to avert fragility in 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-level 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 outflows during market stress. Swing pricing also reduces concavity in the flow-performance relationship and dilution in fund performance.

Keywords: liquidity mismatch; open-end mutual funds; fragility; swing pricing; strategic complementarity

JEL Classification: G01; G23

Suggested Citation

Jin, Dunhong and Kacperczyk, Marcin T. and Kahraman, Bige and Suntheim, Felix, Swing Pricing and Fragility in Open-end Mutual Funds (January 1, 2021). The Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3280890 or http://dx.doi.org/10.2139/ssrn.3280890

Dunhong Jin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Bige Kahraman (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Felix Suntheim

International Monetary Fund (IMF) - Monetary and Capital Markets Department ( email )

United States

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