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

Journal of Financial and Quantitative Analysis, forthcoming

Swedish House of Finance Research Paper No. 18-1

59 Pages Posted: 28 Dec 2017 Last revised: 19 Dec 2020

See all articles by Ramin Baghai

Ramin Baghai

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

Aalto University School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 3, 2020

Abstract

How does the structure of financial intermediaries’ liabilities affect their asset holdings? We investigate the consequences of the 2014 money market fund (MMF) reform, which imposed redemption gates and liquidity fees on prime MMFs and forced prime funds marketed to institutional investors to switch from constant to floating net asset value. These changes made prime MMFs’ liabilities less money-like. As a consequence, the affected MMFs experienced an increase in the flow-performance sensitivity and started taking more risk. In addition, the total funding provided by MMFs to the corporate sector, and especially to safer issuers, has decreased.

Keywords: Liquidity; Money Market Funds; Risk-Taking; 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 (December 3, 2020). Journal of Financial and Quantitative Analysis, forthcoming , 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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Ivika Jäger

Aalto University School of Business ( email )

Espoo
Finland

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