Investor Information Acquisition and Money Market Fund Risk Rebalancing During the 2011-12 Eurozone Crisis
78 Pages Posted: 16 Dec 2016 Last revised: 15 Dec 2019
Date Written: March 12, 2019
We study investor redemptions and portfolio rebalancing decisions of prime money market mutual funds (MMFs) during the Eurozone crisis. We find that sophisticated investors selectively acquire information about MMFs’ risk exposures to Europe, which leads managers to withdraw funding from information-sensitive European issuers. That is, MMF managers, particularly those serving the most sophisticated investors, selectively adjust their portfolio risk exposures to avoid information-sensitive European risks, while maintaining or increasing risk exposures to other regions. This mechanism helps to explain the occurrence of selective “dry-ups” in debt markets where delegation is common and returns to information production are usually low.
Keywords: Money market funds, Eurozone crisis, financial fragility, endogenous information acqui- sition, transparency in short-term funding markets
JEL Classification: G01, G21, G23
Suggested Citation: Suggested Citation