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Swing Pricing and Fragility in Open-end Mutual Funds

2019-11-01 Business & Economics
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Release : 2019-11-01
Genre : Business & Economics
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Book Rating : 33X/5 ( reviews)

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Book Synopsis Swing Pricing and Fragility in Open-end Mutual Funds by : Dunhong Jin

Download or read book Swing Pricing and Fragility in Open-end Mutual Funds written by Dunhong Jin. This book was released on 2019-11-01. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Swing Pricing and Fragility in Open-end Mutual Funds

2019-11-01 Business & Economics
Download Swing Pricing and Fragility in Open-end Mutual Funds PDF Online Free

Author :
Release : 2019-11-01
Genre : Business & Economics
Kind : eBook
Book Rating : 492/5 ( reviews)

GET EBOOK


Book Synopsis Swing Pricing and Fragility in Open-end Mutual Funds by : Dunhong Jin

Download or read book Swing Pricing and Fragility in Open-end Mutual Funds written by Dunhong Jin. This book was released on 2019-11-01. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Swing Pricing for Mutual Funds

2019
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Release : 2019
Genre :
Kind : eBook
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Book Synopsis Swing Pricing for Mutual Funds by : Agostino Capponi

Download or read book Swing Pricing for Mutual Funds written by Agostino Capponi. This book was released on 2019. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model of the feedback between mutual fund outflows and asset illiquidity. Following a market shock, alert investors anticipate the impact on a fund's net asset value (NAV) of other investors' redemptions and exit first at favorable prices. This first-mover advantage may lead to fund failure through a cycle of falling prices and increasing redemptions. Our analysis shows that (i) the first-mover advantage introduces a nonlinear dependence between a market shock and the aggregate impact of redemptions on the fund's NAV; (ii) as a consequence, there is a critical magnitude of the shock beyond which redemptions bring down the fund; (iii) properly designed swing pricing transfers liquidation costs from the fund to redeeming investors and, by removing the nonlinearity stemming from the first-mover advantage, it reduces these costs and prevents fund failure. Achieving these objectives requires a larger swing factor at larger levels of outflows. The swing factor for one fund may also depend on policies followed by other funds.

Research Handbook of Financial Markets

2023-05-09 Business & Economics
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Release : 2023-05-09
Genre : Business & Economics
Kind : eBook
Book Rating : 328/5 ( reviews)

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Book Synopsis Research Handbook of Financial Markets by : Refet S. Gürkaynak

Download or read book Research Handbook of Financial Markets written by Refet S. Gürkaynak. This book was released on 2023-05-09. Available in PDF, EPUB and Kindle. Book excerpt: The Research Handbook of Financial Markets carefully discusses the histories and current states of the most important financial markets and institutions, as well as explicitly underscoring open questions that need study. By describing the institutional structure of different markets and highlighting recent changes within them, it accurately highlights their evolving nature.

Global Financial Stability Report, October 2022

2022-10-11 Business & Economics
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Release : 2022-10-11
Genre : Business & Economics
Kind : eBook
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Book Synopsis Global Financial Stability Report, October 2022 by : International Monetary

Download or read book Global Financial Stability Report, October 2022 written by International Monetary. This book was released on 2022-10-11. Available in PDF, EPUB and Kindle. Book excerpt: Global financial stability risks have increased amid a series of cascading shocks. Chapter 1 analyzes the policy response of central banks to high inflation, the risks of a disorderly tightening of financial conditions, and debt distress among emerging and frontier markets. Markets have been extremely volatile, and a deterioration in market liquidity appears to have amplified price moves. In Europe, the energy crisis is contributing to a worsening outlook. In China, the property sector remains a key source of vulnerability. Chapter 2 examines how to narrow the climate financing gap in emerging market and developing economies. Climate policies, including carbon pricing, climate disclosures, and transition taxonomies, are crucial for enabling private climate finance. Innovative financial instruments can help to scale up private climate finance, but the public sector—including multilateral development banks—will have to play a key supporting role. Chapter 3 analyzes the contributions of open-end investment funds to fragilities in asset markets. Open-end investment funds play a key role in financial markets, but those offering daily redemptions while holding illiquid assets can amplify the effects of adverse shocks by raising the likelihood of investor runs and asset fire sales. This contributes to volatility in asset markets and potentially threatens financial stability.

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