Is the Price Right? Swing Pricing and Investor Redemptions
40 Pages Posted: 13 Oct 2017
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: Suggested Citation