Traditional pricing models for mutual funds penalize loyal investors and might even fuel panic sell-offs in times of stress. Do alternative pricing methods offer a solution?
Summary
Mutual funds constitute one of the largest investment vehicles for both institutional and retail investors. Millions of people invest through such funds and the price at which such funds can be bought and sold has important implications for their financial well-being.
But mutual funds have also been blamed for fuelling financial crises – amplifying shocks and transmitting stress across the system – as investors exit in times of stress. Part of the problem may lie in the pricing model of mutual funds, which traditionally can leave loyal investors to pick up the costs of selling caused by those exiting the fund.
With a growing number of funds now offering alternative pricing structures the data are now available to compare these pricing systems and assess how they make a difference to investors returns and to the stability of the market.
Authors
Dunhong Jin, Marcin Kacperczyk, Bige Kahraman and Felix Suntheim.
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