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

2018 ◽  
Author(s):  
Agostino Capponi ◽  
Paul Glasserman ◽  
Marko Weber
Keyword(s):  
Mutual Funds ◽  
Feedback Loop ◽  
Fire Sales

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

2020 ◽  
Vol 66 (8) ◽  
pp. 3581-3602 ◽  
Author(s):  
Agostino Capponi ◽  
Paul Glasserman ◽  
Marko Weber
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Feedback Loop ◽  
Nonlinear Dependence ◽  
Fire Sales ◽  
First Mover Advantage ◽  
Asset Value ◽  
Net Asset Value ◽  
The Impact ◽  
First Mover

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. This paper was accepted by David Simchi-Levi, finance.

Corporate bond mutual funds and asset fire sales

2020 ◽  
Vol 138 (2) ◽  
pp. 432-457 ◽  
Author(s):  
Jaewon Choi ◽  
Saeid Hoseinzade ◽  
Sean Seunghun Shin ◽  
Hassan Tehranian
Keyword(s):  
Mutual Funds ◽  
Corporate Bond ◽  
Fire Sales ◽  
Bond Mutual Funds

Do Mutual Funds Flows Lead to Fire-sales and Pose Systemic Risk?

2020 ◽  
Author(s):  
Rochelle (Shelly) Antoniewicz ◽  
Christof W. Stahel
Keyword(s):  
Mutual Funds ◽  
Systemic Risk ◽  
Fire Sales

Fire Sales and Impediments to Liquidity Provision in the Corporate Bond Market

2019 ◽  
Vol 55 (8) ◽  
pp. 2613-2640 ◽  
Author(s):  
Z. Jay Wang ◽  
Hanjiang Zhang ◽  
Xinde Zhang
Keyword(s):  
Mutual Funds ◽  
Financial Regulation ◽  
Corporate Bond ◽  
Insurance Companies ◽  
Corporate Bond Market ◽  
Fire Sales ◽  
Liquidity Provision ◽  
Regulatory Changes ◽  
Investment Styles ◽  
In Fire

We examine impediments to liquidity provision by mutual funds to insurance companies during corporate bond fire sales. We find that financial regulation and limited capital capacity significantly affect liquidity provision. Mutual funds reduced their purchase of fire-sale bonds following regulatory changes after the 2008–2009 financial crisis. Funds facing more capital constraints (proxied by smaller cash and Treasury holdings, less liquid corporate bond investments, higher redemption risk, and less active investment styles) provide less liquidity. Mutual funds actively investing in fire-sale bonds earn significant returns from liquidity provision and demonstrate superior overall skills in corporate bond investments.

Novel players fine-tune plant trade-offs

2015 ◽  
Vol 58 ◽  
pp. 83-100 ◽  
Author(s):  
Selena Gimenez-Ibanez ◽  
Marta Boter ◽  
Roberto Solano
Keyword(s):  
Ubiquitin Ligase ◽  
Feedback Loop ◽  
Molecular Level ◽  
26S Proteasome ◽  
Signalling Molecules ◽  
Transcriptional Reprogramming ◽  
Trade Offs ◽  
Jaz Proteins ◽  
Regulatory Feedback Loop ◽  
Fine Tune

Jasmonates (JAs) are essential signalling molecules that co-ordinate the plant response to biotic and abiotic challenges, as well as co-ordinating several developmental processes. Huge progress has been made over the last decade in understanding the components and mechanisms that govern JA perception and signalling. The bioactive form of the hormone, (+)-7-iso-jasmonyl-l-isoleucine (JA-Ile), is perceived by the COI1–JAZ co-receptor complex. JASMONATE ZIM DOMAIN (JAZ) proteins also act as direct repressors of transcriptional activators such as MYC2. In the emerging picture of JA-Ile perception and signalling, COI1 operates as an E3 ubiquitin ligase that upon binding of JA-Ile targets JAZ repressors for degradation by the 26S proteasome, thereby derepressing transcription factors such as MYC2, which in turn activate JA-Ile-dependent transcriptional reprogramming. It is noteworthy that MYCs and different spliced variants of the JAZ proteins are involved in a negative regulatory feedback loop, which suggests a model that rapidly turns the transcriptional JA-Ile responses on and off and thereby avoids a detrimental overactivation of the pathway. This chapter highlights the most recent advances in our understanding of JA-Ile signalling, focusing on the latest repertoire of new targets of JAZ proteins to control different sets of JA-Ile-mediated responses, novel mechanisms of negative regulation of JA-Ile signalling, and hormonal cross-talk at the molecular level that ultimately determines plant adaptability and survival.

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