Swing Pricing and Fragility in Open-End Mutual Funds

46 Pages Posted: 3 Dec 2019

See all articles by Dunhong Jin

Dunhong Jin

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; National Bureau of Economic Research (NBER)

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: November 2019

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: Asset management companies, Liquidity risk management, Mutual funds, Financial crises, Economic stabilization, liquidity mismatch, fund runs, fragility, swing pricing, strategic complementarity, WP, illiquidity, indicator variable, open-end, Inst, fund performance

JEL Classification: G2, G28, G01, G23, E01, E52, G12, E63, G21

Suggested Citation

Jin, Dunhong and Kacperczyk, Marcin T. and Kahraman, Bige and Suntheim, Felix, Swing Pricing and Fragility in Open-End Mutual Funds (November 2019). IMF Working Paper No. 19/227. Available at SSRN: https://ssrn.com/abstract=3496705

Dunhong Jin (Contact Author)

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bige Kahraman

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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