Swing Pricing for Mutual Funds: Breaking the Feedback Loop Between Fire Sales and Fund Redemptions

• 成果类型: Article
• 署名作者: Capponi, Agostino; Glasserman, Paul; Weber, Marko
• 署名单位: Columbia University; Columbia University; National University of Singapore
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3353
• 发表日期: 2020
• 页码: 3581-3602
• 关键词: mutual funds; first-mover advantage; swing price; fire sales; Financial stability

摘要

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 brings 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.