Séminaire Nancy – Thomas Garcia (Banque de France)

Détails de l'événement :

“Swing pricing and flow dynamics during of the Covid-19 crisis” with Antoine Baena

Abstract: Swing pricing is a recent liquidity management tool designed to reallocate the liquidity cost from remaining to transacting investors. We study its impact on French investment funds’ financial stability in light of the Covid-19 crisis. We find that swing pricing had only a limited impact on fund stability during the financial turmoil. Our study highlights two new underlying mechanisms that explain this result. First, constraints on the activation and intensity of swing pricing decrease its stabilizing effect. Second, it suffers from a stigma effect: we observe a deterioration of inflows during systemic stress as well as a flight of investors immediately after the implementation. However, we highlight a strong stabilizing effect in the absence of constraints or when the portfolio restructuring cost is high. We thus conclude that while swing pricing has the potential to increase financial stability, its calibration is crucial to ensure that the stabilizing effect offsets the stigma effect.