Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry

55 Pages Posted: 28 Dec 2017 Last revised: 21 May 2019

See all articles by Ramin Baghai

Ramin Baghai

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); Swedish House of Finance

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Ivika Jäger

Stockholm School of Economics, Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 19, 2019

Abstract

We exploit a change in regulation of money market funds to investigate how the structure of liabilities affects financial intermediaries’ asset holdings. We show that following a change in regulation, which made prime money market funds’ liabilities less money-like, safer funds exited the industry. The remaining funds increased the riskiness of their portfolios, possibly in response to an increase in the sensitivity of flows to performance. As a result, issuers with lower risk of default have less access to funding from US money market funds. These findings support theories highlighting that in the absence of government interventions, the private sector may be unable to create liquid assets.

Keywords: Money-ness; Liquidity; Money market funds; Risk taking; Fund exit; Regulation

JEL Classification: G1; G28

Suggested Citation

Baghai, Ramin and Giannetti, Mariassunta and Jäger, Ivika, Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry (May 19, 2019). Swedish House of Finance Research Paper No. 18-1. Available at SSRN: https://ssrn.com/abstract=3093519 or http://dx.doi.org/10.2139/ssrn.3093519

Ramin Baghai

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Ivika Jäger

Stockholm School of Economics, Swedish House of Finance ( email )

Drottninggatan 98
Stockholm, 11160
Sweden

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