FRIC/Finance Brown Bag Seminar with Dominic Cucic, Danmarks Nationalbank
The Department of Finance and FRIC, Center for Financial Frictions, are proud to announce the upcoming online seminar with Dominic Cucic, Danmarks Nationalbank.
Dominic Cucic will present:
Regulating Liquidity Risk in Mutual Funds
This paper investigates the effects of liquidity risk in the mutual fund industry and whether regulatory policies can mitigate it. The analysis is based on an equilibrium model of investors, mutual funds and traders in the underlying asset market. Investor redemptions force mutual funds to sell assets which may result in fire sales if market liquidity, driven by the anticipation of fire sales, is scarce. Competitive mutual funds optimally choose to mark their shares to market, thereby passing potential fire sales on to investors. Traders' ex-ante liquidity supply to the asset market is subject to a pecuniary externality, resulting in a constrained inefficient equilibrium. Popular policy proposals, liquidity buffers and redemption gates, have rarely discussed adverse equilibrium effects on asset market liquidity which may lead to more fire sales and lower welfare.
Location and sign up:
This is an online seminar on Zoom.
Please contact us in order to sign up.