Runs on Money Market Funds
63 Pages Posted: 2 Jun 2014
Date Written: March 2014
Abstract
We study daily money market mutual fund flows at the individual share class level during the crisis of September 2008. The empirical approach that we apply to this fine granularity of data brings new insights into the investor and portfolio holding characteristics that are conducive to run-risk in cash-like asset pools, as well as providing evidence on the time-series dynamics of runs and the equilibria that develop. We find that outflows during the crisis are concentrated among those money funds with higher promised yields, less liquid portfolios, low implicit sponsor backing, and higher prior flow volatility that cater to very large-scale institutional investors. Our data uniquely allows us to study the strategic redemption behavior of investors with differing levels of sophistication by studying flows to different share classes of the same money fund, thus holding constant the quality of the underlying portfolio. Our results are consistent with the most sophisticated (largest scale) institutional investors exhibiting the greatest level of strategic redemptions during the crisis, which created significant negative externalities for more passive institutional investors.
Keywords: bank runs, money market mutual funds, quantile regression, strategic complementarities
JEL Classification: G01, G21, G23
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
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
-
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