## Swing Pricing and Fragility in Open-end Mutual Funds

_IMF Working Papers, November 1, 2019_

## Source details

**Canonical URL:** [Swing Pricing and Fragility in Open-end Mutual Funds](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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## Bibliographic details
- 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

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### Summary and research question
- 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.

### Main findings
- 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 and methodology (as described)
- 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.

### Policy implications and interpretation
- 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.

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2019/11/01/swing-pricing-and-fragility-in-open-end-mutual-funds-48729_