Is the Price Right? Swing Pricing and Investor Redemptions

40 Pages Posted: 13 Oct 2017

See all articles by Ulf Lewrick

Ulf Lewrick

Bank for International Settlements (BIS) - Monetary and Economic Department; University of Basel - Faculty of Business and Economics

Jochen F. Schanz

Bank for International Settlements (BIS)

Date Written: October 2017

Abstract

How effective are available policy tools in managing liquidity risks in the mutual fund industry? We assess one such tool - swing pricing - which allows funds to adjust their settlement price in response to large net flows. Our empirical analysis exploits the fact that swing pricing is available to Luxembourg funds, but not yet to U.S. funds. We show that swing pricing dampens outflows in reaction to weak fund performance, but has a limited effect during stress episodes. Furthermore, swing pricing supports fund returns, while raising accounting volatility, and may lead to lower cash buffers.

Keywords: Financial stability, mutual funds, regulation, market liquidity

JEL Classification: G01, G23, G28, C72

Suggested Citation

Lewrick, Ulf and Schanz, Jochen F., Is the Price Right? Swing Pricing and Investor Redemptions (October 2017). BIS Working Paper No. 664, Available at SSRN: https://ssrn.com/abstract=3051483

Ulf Lewrick (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

University of Basel - Faculty of Business and Economics ( email )

Petersplatz 1
Basel, 4001
Switzerland

Jochen F. Schanz

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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