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Title: Swing Pricing: Theory and Evidence
Open-end mutual funds offer investors same-day liquidity while holding assets that in some cases take several days to sell. This liquidity transformation creates a potentially destabilizing first-mover advantage: When asset prices fall, investors who exit a fund earlier may pass the liquidation costs generated by their share redemptions to investors who remain in the fund. This incentive becomes particularly acute in periods of market stress, and it can amplify fire-sale spillover losses to other market participants. Swing pricing is a liquidity management tool that targets this first-mover advantage. It allows a fund to adjust or “swing” its net asset value in response to large flows out of or into a mutual fund. This article discusses the industry and regulatory context for swing pricing, and it reviews theory and empirical evidence on the design and effectiveness of swing pricing. The article concludes with directions for further research.  more » « less
Award ID(s):
1752326
PAR ID:
10523736
Author(s) / Creator(s):
; ;
Publisher / Repository:
Annual Reviews
Date Published:
Journal Name:
Annual Review of Financial Economics
Volume:
15
Issue:
1
ISSN:
1941-1367
Page Range / eLocation ID:
617 to 640
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
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