How Safe are Money Market Funds?
50 Pages Posted: 25 Feb 2011 Last revised: 13 Mar 2013
Date Written: March 12, 2013
Abstract
We examine the risk-taking behavior of money market funds during the financial 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 suffered 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.
Keywords: Risk-Taking Incentives, Money Market Funds, Financial Conglomerates
JEL Classification: G20, G32, G33, G38, E53
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Cross Section of Money Market Fund Risks and Financial Crises
-
The Cross Section of Money Market Fund Risks and Financial Crises
-
Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System
-
Runs on Money Market Mutual Funds
By Lawrence Schmidt, Allan Timmermann, ...
-
Runs on Money Market Mutual Funds
By Russ Wermers
-
By Lawrence Schmidt, Allan Timmermann, ...
-
The Minimum Balance at Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds
By Patrick E. Mccabe, Marco Cipriani, ...
-
The Minimum Balance at Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds
By Patrick E. Mccabe, Marco Cipriani, ...
-
Getting up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide
By Gary B. Gorton and Andrew Metrick