Market Efficiency and Money Market Fund Portfolio Managers: Beliefs Versus Reality

27 Pages Posted: 26 Feb 2003

See all articles by Ramon P. DeGennaro

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

Dale L. Domian

York University - School of Administrative Studies

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Abstract

This paper develops two models of the money market mutual fund maturity decision. The first assumes that markets are efficient but that transactions are costly. The second model relies on a survey of fund managers to select variables that might permit exploiting perceived profit opportunities. Empirical tests provide strong support for the former model, but none for the latter. This can be interpreted as meaning that although managers may believe that financial markets are inefficient, margins are too small and competition too fierce for them to act aggressively on those beliefs. Any actions they do take to exploit alleged inefficiencies are not detectable in the data. In addition, the study finds that managers in the aggregate have no special ability to adjust their funds' maturity to capitalize on interest-rate changes.

JEL Classification: G1, G2, G0, E4, D4, C5

Suggested Citation

DeGennaro, Ramon P. and Domian, Dale L., Market Efficiency and Money Market Fund Portfolio Managers: Beliefs Versus Reality. Available at SSRN: https://ssrn.com/abstract=380540 or http://dx.doi.org/10.2139/ssrn.380540

Ramon P. DeGennaro (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)

Dale L. Domian

York University - School of Administrative Studies ( email )

Toronto, Ontario M3J 1P3
Canada
416-736-2100, x20009 (Phone)
416-736-5963 (Fax)

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