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Swing Pricing: Theory and Evidence

Author

Listed:
  • Agostino Capponi

    (Department of Industrial Engineering and Operations Research, Columbia University, New York, NY, USA)

  • Paul Glasserman

    (Columbia Business School, Columbia University, New York, NY, USA)

  • Marko Weber

    (Mathematics Department, National University of Singapore, Singapore)

Abstract

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.

Suggested Citation

  • Agostino Capponi & Paul Glasserman & Marko Weber, 2023. "Swing Pricing: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 15(1), pages 617-640, November.
    • Handle: RePEc:anr:refeco:v:15:y:2023:p:617-640
    DOI: 10.1146/annurev-financial-110921-100843
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    Citations

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    Cited by:

    1. Molestina Vivar, Luis, 2025. "Mitigating fragility in open-ended investment funds: the role of redemption restrictions," ESRB Working Paper Series 150, European Systemic Risk Board.

    More about this item

    Keywords

    mutual funds; liquidity transformation; fire sales; liquidity management;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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