Swing Pricing and Fragility in Open-end Mutual Funds
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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. 2019/227
Subject:
Corporate bonds Financial institutions Financial regulation and supervision Flow of funds Liquidity risk Mutual funds National accounts Price structures Prices
English
Publication Date:
November 1, 2019
ISBN/ISSN:
9781513518336/1018-5941
Stock No:
WPIEA2019227
Pages:
46
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