Is the Price Right? Swing Pricing and Investor Redemptions

Lewrick, Ulf; Schanz, Jochen

doi:10.2139/ssrn.3055690

Cited by 13 publications

(3 citation statements)

References 27 publications

(45 reference statements)

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“…Our results are also consistent with empirical findings on procyclical investment behaviours among asset managers. Timmer (2018) finds that investment funds that face more outflows act 4 See also Lewrick and Schanz (2017) for an analysis of US and Luxembourg bond funds.…”

Section: Related Literaturementioning

confidence: 99%

Burned by leverage? Flows and fragility in bond mutual funds

Vivar

Wedow

Weistroffer

2023

Journal of Empirical Finance

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Section: Related Literaturementioning

confidence: 99%

Burned by leverage? Flows and fragility in bond mutual funds

Vivar

Wedow

Weistroffer

2023

Journal of Empirical Finance

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“…Based on the empirical study of US funds and their Luxembourg counterparts, Lewrick and Schanz (2017b) noticed that negative returns imply larger outflows during normal market conditions for US funds. In stressed markets, in particular during the 2013 US taper tantrum, they found no difference.…”

Section: Effectiveness Of Swing Pricingmentioning

confidence: 99%

Liquidity Stress Testing in Asset Management, Part 1. Modeling the Liability Liquidity Risk

Roncalli

Cherief²,

Karray-Meziou³

et al. 2020

SSRN Journal

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This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers the modeling of the liability liquidity risk (or funding liquidity), the second dimension is dedicated to the modeling of the asset liquidity risk (or market liquidity), whereas the third dimension considers the management of the asset-liability liquidity risk (or assetliability matching). The purpose of this research is to propose a methodological and practical framework in order to perform liquidity stress testing programs, which comply with regulatory guidelines (ESMA, 2019a(ESMA, , 2020a and are useful for fund managers. The review of the academic literature and professional research studies shows that there is a lack of standardized and analytical models. The aim of this research project is then to fill the gap with the goal of developing mathematical and statistical approaches, and providing appropriate answers.In this third and last research paper focused on managing the asset-liability liquidity risk, we explore the ALM tools that can be put in place to control the liquidity gap. These ALM tools can be split into three categories: measurement tools, management tools and monitoring tools. In terms of measurement tools, we focus on the computation of the redemption coverage ratio (RCR), which is the central instrument of liquidity stress testing programs. We also study the redemption liquidation policy and the different implementation methodologies, and we show how reverse stress testing can be developed. In terms of liquidity management tools, we study the calibration of liquidity buffers, the pros and cons of special arrangements (redemption suspensions, gates, side pockets and in-kind redemptions) and the effectiveness of swing pricing. In terms of liquidity monitoring tools, we compare the macro-and micro-approaches to liquidity monitoring in order to identify the transmission channels of liquidity risk.

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“…Specifically, fragility has been documented for equity mutual funds(Chen, Goldstein, and Jiang, 2010), bond mutual funds(Goldstein, Jiang, and Ng, 2017;Chen and Qin, 2017), and money market funds(Kacperczyk and Schnabl, 2013;Schmidt, Timmermann, and Wermers 2016). Even hedge funds that have more discretion in dealing with investor redemptions can experience fragility(Agarwal, Aragon, and Shi, 2019;Aragon, Nanda, and Zhao, 2020).4 Funds can manage liquidity with cash holdings(Chernenko and Sunderam, 2016;Zeng, 2017), interfund lending, financial conglomerate affiliation(Franzoni and Giannetti, 2019), and swing pricing(Lewrick and Schanz, 2017;Jin et al, 2020).Electronic copy available at: https://ssrn.com/abstract=3527846…”

mentioning

confidence: 99%

Redemption in Kind and Mutual Fund Liquidity Management

Agarwal

Ren

Shi

et al. 2022

The Review of Financial Studies

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Open-end mutual funds can use redemption in kind to satisfy investor redemptions by delivering securities instead of cash. We find that funds that reserve their rights to redeem in kind experience less redemption after poor performance. Evidence from actual in-kind transactions reveals several unique mechanisms for redemption in kind to mitigate fund runs, including the delivery of more illiquid stocks and stocks with greater tax overhang. Funds suffer less from the adverse impact of outflows on their performance. However, redeeming investors bear significant liquidation costs when they sell securities, costs associated with destabilization in the prices of these securities.

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Is the Price Right? Swing Pricing and Investor Redemptions

Cited by 13 publications

References 27 publications

Burned by leverage? Flows and fragility in bond mutual funds

Burned by leverage? Flows and fragility in bond mutual funds

Liquidity Stress Testing in Asset Management, Part 1. Modeling the Liability Liquidity Risk

Redemption in Kind and Mutual Fund Liquidity Management

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