Swing Pricing and Fragility in Open-End Mutual Funds. (8th March 2021)

• Record Type: Journal Article
• Authors: Jin, Dunhong; Kacperczyk, Marcin; Kahraman, Bige; Suntheim, Felix
• Editors: Goldstein, Itay
• Is Part Of: Review of financial studies. Volume 35:Number 1(2022)
• Page Start: 1
• Page End: 50
• Publication Date: 2021-03-08
• Subjects: G2 -- G23 -- G010; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhab022
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract: How can fragility be averted in 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-level 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 outflows during market stress. Swing pricing also reduces concavity in the flow-performance relationship and dilution in fund performance.