Information Spillover of Bailouts
50 Pages Posted: 18 Aug 2013 Last revised: 27 Dec 2018
Date Written: December 25, 2018
This paper investigates the information spillover effect of government bailouts. Analyzing money market funds’ dynamic enrollment status in the U.S. Treasury Temporary Guarantee Program in 2008, this paper finds that enrolled funds had overall positive fund flows, implying that the stability effect of bailouts outweighed the negative stigma effect. However, the already-enrolled funds experienced a relative reduction in fund flows after investors learned their funds had enrolled earlier than other peer funds (i.e., stigma effect). I address the endogeneity issue of funds’ enrollment status based on an instrumental variable approach. Overall, results show that investors extract useful information about financial institutions’ underlying stability from their demand for bailouts.
Keywords: information spillover, bailouts, money market funds
JEL Classification: G01, G14, G28, G32
Suggested Citation: Suggested Citation