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

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