Investor Competition and the Cost of Capital

33 Pages Posted: 12 Mar 2021 Last revised: 20 Mar 2021

See all articles by Huaizhi Chen

Huaizhi Chen

University of Notre Dame - Department of Finance

Date Written: March 15, 2021


I provide evidence that investor size matters in the market for short-term securities. Between January 2011 and November 2020, the largest asset management families obtained significantly higher promised returns from their money market securities than smaller families. Furthermore, I show that the enactment of Money Market Mutual Fund reforms on October 2016 decreased measures of competition in several categories of Money Market Mutual Funds. Consistent with improving market power, the largest fund families raised their lending rates (by 8 basis points) on their existing borrowers. These results highlight the trade-off in enacting macro-prudential policies and encouraging capital market efficiency.

Keywords: Money Market Funds, Investor Competition, Financial Intermediation, Regulation, Asset Pricing

JEL Classification: G00, G12, G14, G23, G28

Suggested Citation

Chen, Huaizhi, Investor Competition and the Cost of Capital (March 15, 2021). Available at SSRN: or

Huaizhi Chen (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

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