Bank Debt, Mutual Fund Equity, and Swing Pricing in Liquidity Provision

We show that mutual funds issuing demandable equity also provide liquidity by insuring against idiosyncratic liquidity shocks. Quantitatively, the average bond fund provides 5.08 cents of liquidity per dollar, which is economically significant at one-fifth of that of banks. We find that fund liquidity provision is further improved by 6.7% when equity values incorporate the liquidation cost from redemptions, as in swing pricing. This is because swing pricing increases funds' capacity for holding illiquid assets without inducing panic runs.