Swing Pricing and Fragility in Open-end Mutual Funds

Author/Editor:

Dunhong Jin ; Marcin Kacperczyk ; Bige Kahraman ; Felix Suntheim

Publication Date:

November 1, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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.

Series:

Working Paper No. 19/227

Subject:

English

Publication Date:

November 1, 2019

ISBN/ISSN:

9781513518336/1018-5941

Stock No:

WPIEA2019227

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

46

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