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How Safe are Money Market Funds?Marcin T. KacperczykNew York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance Philipp SchnablNew York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) March 12, 2013 Quarterly Journal of Economics, Forthcoming AFA 2012 Chicago Meetings Paper Abstract: We examine the risk-taking behavior of money market funds during the fi nancial crisis of 2007-2010. We find that: (1) money market funds experienced an unprecedented expansion in their risk-taking opportunities; (2) funds had strong incentives to take on risk because fund inflows were highly responsive to fund yields; (3) funds sponsored by financial intermediaries with more money fund business took on more risk; (4) funds suff ered runs as a result of their risk taking. This evidence suggests that money market funds lack safety because they have strong incentives to take on risk when the opportunity arises and are vulnerable to runs.
Number of Pages in PDF File: 50 Keywords: Risk-Taking Incentives, Money Market Funds, Financial Conglomerates JEL Classification: G20, G32, G33, G38, E53 Accepted Paper SeriesDate posted: February 25, 2011 ; Last revised: March 13, 2013Suggested CitationContact Information
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