Investors' Appetite for Money-Like Assets: The MMF Industry after the 2014 Regulatory Reform

59 Pages Posted: 11 Feb 2020

See all articles by Marco Cipriani

Marco Cipriani

Federal Reserve Bank of New York

Gabriele La Spada

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: February 2020

Abstract

This paper uses a quasi-natural experiment to estimate the premium for money-likeness. The 2014 SEC reform of the money market fund (MMF) industry reduced the money-likeness of prime MMFs by increasing their information sensitivity, while leaving government MMFs unaffected. Investors fled from prime to government MMFs, with total outflows exceeding 1 trillion dollars. Using a difference-in-differences design, we estimate the premium for money-likeness to be between 20 and 30 basis points. These premiums are not due to changes in investors' risk tolerance or funds' risk taking. Our results support recent developments in monetary theory identifying information insensitivity as a key feature of money.

Keywords: information sensitivity, Money market funds, Money Market Funds Reform, Money-like Assets

JEL Classification: E41, G23, G28

Suggested Citation

Cipriani, Marco and La Spada, Gabriele, Investors' Appetite for Money-Like Assets: The MMF Industry after the 2014 Regulatory Reform (February 2020). CEPR Discussion Paper No. DP14375. Available at SSRN: https://ssrn.com/abstract=3535461

Marco Cipriani (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Gabriele La Spada

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5164 (Phone)

HOME PAGE: http://https://www.newyorkfed.org/research/economists/laspada

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