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https://ssrn.com/abstract=1333024
 
 

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Sturm und Drang in Money Market Funds: When Money Market Funds Cease to Be Narrow


Stephan Jank


Frankfurt School of Finance & Management gemeinnützige GmbH; University of Cologne - Centre for Financial Research (CFR)

Michael Wedow


European Central Bank (ECB) - Directorate Financial Stability and Supervision; Deutsche Bundesbank

January 26, 2009

Deutsche Bundesbank Discussion Paper No. 2

Abstract:     
This paper investigates the returns and flows of German money market funds before and during the liquidity crisis of 2007/2008. The main findings of this paper are: In liquid times money market funds enhanced their returns by investing in less liquid papers. By doing so they outperformed other funds as long as liquidity in the market was high. Investing in less liquid assets, however, widens the narrow structure of money market funds and makes them vulnerable to runs. During the shortening of liquidity caused by the subprime crisis illiquid funds experienced runs, while more liquid funds functioned as a safe haven.

Number of Pages in PDF File: 56

Keywords: Money Market Funds, Liquidity Crisis, Strategic Complementarities, Runs, Narrow Banking

JEL Classification: G12, G20, G21


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Date posted: February 2, 2009 ; Last revised: February 5, 2009

Suggested Citation

Jank, Stephan and Wedow, Michael, Sturm und Drang in Money Market Funds: When Money Market Funds Cease to Be Narrow (January 26, 2009). Deutsche Bundesbank Discussion Paper No. 2. Available at SSRN: https://ssrn.com/abstract=1333024 or http://dx.doi.org/10.2139/ssrn.1333024

Contact Information

Stephan Jank (Contact Author)
Frankfurt School of Finance & Management gemeinnützige GmbH ( email )
Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany
HOME PAGE: http://sites.google.com/site/stephanjank
University of Cologne - Centre for Financial Research (CFR) ( email )
Albertus-Magnus Platz
Cologne, 50923
Germany
Michael Wedow
European Central Bank (ECB) - Directorate Financial Stability and Supervision ( email )
Frankfurt a.M.
Germany

Deutsche Bundesbank ( email )
Wilhem-Epstein-Str.14
Frankfurt a.M., DE 60431
Germany
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