Regulating liquidity risk in mutual funds

Dominic Cucic

I analyze the effects of liquidity risk regulation in a model of investors, mutual funds, and the underlying asset market. Investor redemptions lead mutual funds to sell assets, which may result in fire sales if market liquidity, driven by the anticipation of fire sales, is scarce. Mutual funds optimally choose to pass fire sales of their assets on to investors. Pecuniary externalities make liquidity supply to the underlying asset market inefficiently low. Regulatory policies, liquidity requirements for mutual funds, and redemption gates have adverse effects on liquidity provision to the asset market and may increase the incidence of fire sales.

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Year of publication:	[2021]
Authors:	Cucic, Dominic
Publisher:	Copenhagen : Danmarks Nationalbank
Subject:	Financial stability \| Financial regulation \| Financial institutions \| Bankenregulierung \| Bank regulation \| Investmentfonds \| Investment Fund \| Regulierung \| Regulation \| Finanzmarkt \| Financial market \| Bankenliquidität \| Bank liquidity \| Finanzmarktregulierung \| Financial market regulation \| Welt \| World \| Finanzsektor \| Financial sector

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Extent:	1 Online-Ressource (circa 63 Seiten) Illustrationen
Series:	Working paper / Danmarks Nationalbank ; nr. 171 (08 March 2021)
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature
Language:	English
Other identifiers:	hdl:10419/245992 [Handle]
Classification:	D62 - Externalities ; G11 - Portfolio Choice ; G23 - Pension Funds; Other Private Financial Institutions ; G38 - Government Policy and Regulation
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10012487931