{
  "title": "Swing Pricing and Fragility in Open-end Mutual Funds",
  "publication": "IMF Working Papers, November 1, 2019",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2019/11/01/swing-pricing-and-fragility-in-open-end-mutual-funds-48729",
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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.",
  "sections": [
    {
      "heading": "Summary and research question",
      "content": "- Research question: How to prevent runs on open-end mutual funds?\n- Innovation studied: Alternative pricing rules (known as swing pricing) that adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders.\n- Context: Analysis uses unique data on investor transactions in U.K. corporate bond funds."
    },
    {
      "heading": "Main findings",
      "content": "- Swing pricing eliminates the first-mover advantage arising from the traditional pricing rule.\n- Swing pricing significantly reduces redemptions during stress periods.\n- 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."
    },
    {
      "heading": "Data and methodology (as described)",
      "content": "- Data: Unique investor transactions in U.K. corporate bond funds.\n- Scope: Corporate bonds, mutual funds, liquidity mismatch and liquidity risk, pricing mechanisms and price structures in open-end funds."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Alternative pricing rules (swing pricing) can mitigate run risk in open-end mutual funds by shifting trading costs to transacting shareholders and thereby removing the first-mover advantage.\n- Policymakers should weigh benefits during stress periods against potential costs in calm periods, notably higher tracking error and its effects on fund flows.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2019/11/01/swing-pricing-and-fragility-in-open-end-mutual-funds-48729"
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    "Authors: Dunhong Jin, Marcin Kacperczyk, Bige Kahraman, Felix Suntheim",
    "Published: November 1, 2019",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513518336.001",
    "Research question: How to prevent runs on open-end mutual funds?",
    "Innovation studied: Alternative pricing rules (known as swing pricing) that adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders.",
    "Context: Analysis uses unique data on investor transactions in U.K. corporate bond funds.",
    "Swing pricing eliminates the first-mover advantage arising from the traditional pricing rule.",
    "Swing pricing 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.",
    "Data: Unique investor transactions in U.K. corporate bond funds.",
    "Scope: Corporate bonds, mutual funds, liquidity mismatch and liquidity risk, pricing mechanisms and price structures in open-end funds.",
    "Alternative pricing rules (swing pricing) can mitigate run risk in open-end mutual funds by shifting trading costs to transacting shareholders and thereby removing the first-mover advantage.",
    "Policymakers should weigh benefits during stress periods against potential costs in calm periods, notably higher tracking error and its effects on fund flows.",
    "**Working Paper**"
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