Scale Economies in the Money Market

33 Pages Posted: 5 Dec 2019

See all articles by Su Li

Su Li

U.S. Securities and Exchange Commission

David K. Musto

University of Pennsylvania - Finance Department

Date Written: November 18, 2019

Abstract

Money-market issuers reward scale when they borrow from prime money funds. The scale they reward isn’t the scale of the transaction or of the fund, but rather the scale of the fund complex. For a one-month loan the magnitude is a basis point per fourfold increase in complex size. Larger complexes also enjoy an advantage when exiting holdings: they are both more likely to part with a holding and more likely to exchange it with the issuer for new paper with longer maturity. Our results demonstrate both economies of scale, which can concentrate the industry, and also the importance of relationships in money-market transactions.

Keywords: money market, mutual funds, economies of scale

JEL Classification: G11, G12, G23

Suggested Citation

Li, Su and Musto, David K., Scale Economies in the Money Market (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=3489470 or http://dx.doi.org/10.2139/ssrn.3489470

Su Li

U.S. Securities and Exchange Commission ( email )

100 F Street NE
Washington, DC 20549
United States

David K. Musto (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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