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We develop a framework to quantify the vulnerability of mutual funds to fire-sale spillover losses. We account for the first-mover incentive that results from the mismatch between the liquidity offered to redeeming investors and the liquidity of assets held by the funds. In our framework, the negative feedback loop between investors' redemptions and price impact from asset sales leads to an aggregate change in funds' NAV, which is determined as a fixed point of a nonlinear mapping. We show that a higher concentration of first movers increases the aggregate vulnerability of the system, as measured by the ratio between endogenous losses due to fund redemptions and exogenous losses due to initial price shocks only. When calibrated to U.S. mutual funds, our model shows that, in stressed market scenarios, spillover losses are significantly amplified through a nonlinear response to initial shocks that results from the first-mover incentive. Higher spillover losses provide a stronger incentive to redeem early, further increasing fire-sale losses and the transmission of shocks through overlapping portfolio holdings. 

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. 

We study systemic risk in a supply chain network where firms are connected through purchase orders. Firms can be hit by cost or demand shocks, which can cause defaults. These shocks propagate through the supply chain network via input-output linkages between buyers and suppliers. Firms endogenously take contingency plans to mitigate the impact generated from disruptions. We show that, as long as firms have large initial equity buffers, network fragility is low if both buyer diversification and supplier diversification are low. We find that a single-sourcing strategy is beneficial for a firm only if the default probability of the firm’s supplier is low. Otherwise, a multiple-sourcing strategy is ex post more cost effective for a firm. Funding: J.R. Birge acknowledges financial support from the University of Chicago Booth School of Business. The research of A. Capponi has been supported by the NSF/CMMI CAREER-1752326 award. P.-C. Chen acknowledges financial support from the Research Grant Council of Hong Kong [Early Career Scheme Grant 27210118]. Supplemental Material: The e-companion is available at https://doi.org/10.1287/opre.2022.2409 . 

This paper endogenizes intervention in financial crises as the strategic negotiation between a regulator and creditors of distressed banks. Incentives for banks to contribute to a voluntary bail-in arise from their exposure to financial contagion. In equilibrium, a bail-in is possible only if the regulator's threat to not bail out insolvent banks is credible. Contrary to models without intervention or with government bailouts only, sparse networks enhance welfare for two main reasons: they improve the credibility of the regulator's no-bailout threat for large shocks and they reduce free-riding incentives among bail-in contributors when the threat is credible 

This paper endogenizes intervention in financial crises as the strategic negotiation between a regulator and creditors of distressed banks. Incentives for banks to contribute to a voluntary bail-in arise from their exposure to fi nancial contagion. In equilibrium, a bail-in is possible only if the regulator's threat to not bail out insolvent banks is credible. Contrary to models without intervention or with government bailouts only, sparse networks enhance welfare for two main reasons: they improve the credibility of the regulator's no-bailout threat for large shocks and they reduce free-riding incentives among bail-in contributors when the threat is credible