Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/193549 
Authors: 
Year of Publication: 
2017
Series/Report no.: 
ESRB Working Paper Series No. 42
Publisher: 
European Systemic Risk Board (ESRB), European System of Financial Supervision, Frankfurt a. M.
Abstract: 
I model an open-end mutual fund investing in illiquid assets and show that the fund's endogenous cash management can generate shareholder runs even with a flexible NAV. The fund optimally re-builds its cash buffers at time t + 1 after outflows at t to prevent future forced sales of illiquid assets. However, cash rebuilding at t + 1 implies predictable voluntary sales of illiquid assets, generating a predictable decline in NAV. This generates a first-mover advantage, leading to runs. A time-inconsistency problem aggravates runs: the fund may want to pre-commit not to re-build cash buffers but cannot credibly do so absent a commitment device.
Subjects: 
open-end mutual fund
illiquid assets
shareholder runs
cash rebuilding
flexible NAV
JEL: 
G01
G21
G23
G32
G33
D92
Persistent Identifier of the first edition: 
ISBN: 
978-92-95210-04-2
Document Type: 
Working Paper

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