Swing Pricing and Flow Dynamics in Light of the COVID-19 Crisis

59 Pages Posted: 21 Dec 2022

See all articles by Antoine Baena

Antoine Baena

Université Paris Dauphine; Banque de France

Thomas Garcia

Banque de France

Date Written: December 9, 2022

Abstract

Swing pricing is a recent liquidity management tool designed to reallocate the liquidity cost from remaining to transacting investors by adjusting share prices. Based on unique text-mining data, we observe that its use is spreading among French funds, is systematically associated with an activation threshold, and is regularly associated with swing factor caps. We find that swing pricing had only a limited impact on the financial stability of funds during the COVID-19 turmoil. By disentangling the impact of the different types of swing pricing and analyzing situations of potential acute dilution, we identify that the observed limited effectiveness of swing pricing is mainly explained by the use of swing factor cap that prevents the stabilizing effect to offset a stigma effect. We thus conclude that while swing pricing has the potential to increase financial stability, funds should refrain from using swing factor caps so as not to mitigate stabilizing effects.

Keywords: liquidity management tools, swing pricing, investment funds, runs

JEL Classification: G10, G23, G28

Suggested Citation

Baena, Antoine and Garcia, Thomas, Swing Pricing and Flow Dynamics in Light of the COVID-19 Crisis (December 9, 2022). Université Paris-Dauphine Research Paper No. 4298540, Available at SSRN: https://ssrn.com/abstract=4298540 or http://dx.doi.org/10.2139/ssrn.4298540

Antoine Baena (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Banque de France ( email )

Paris
France

Thomas Garcia

Banque de France ( email )

Paris
France

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