Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-02T22:57:55.815Z Has data issue: false hasContentIssue false
  • English
  • Français

Once Burned, Twice Shy: Money Market Fund Responses to a Systemic Liquidity Shock

Published online by Cambridge University Press:  08 June 2015

Philip E. Strahan  and
Başak Tanyeri
Philip E. Strahan*
Affiliation:
[email protected], Carroll School of Management, Boston College, Chestnut Hill, MA 02467
Başak Tanyeri
Affiliation:
[email protected], Faculty of Business Administration, Bilkent University, Ankara 06800, Turkey.
*
*Corresponding author: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

After Lehman’s collapse in 2008, investors ran from risky money market funds. In 27 funds, outflows overwhelmed cash inflows, thus forcing asset sales. These funds sold their safest and most liquid holdings. Funds were thus left with riskier and longer maturity assets. Over the subsequent quarter, however, the hard-hit funds reduced risk more than other funds. In contrast, money funds hit by idiosyncratic liquidity shocks before Lehman did not alter portfolio risk. The result suggests that moral hazard concerns with the Treasury Guarantee of investor claims did not increase risk taking. Funds that benefited most from the government bailout reduced risk.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 50 , Issue 1-2 , April 2015 , pp. 119 - 144
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acharya, V.; Schnabl, P.; and Suarez, G.. “Securitization without Risk Transfer.” Journal of Financial Economics, 107 (2013), 515–536.CrossRefGoogle Scholar
Brady, S. A.; Anadu, K. A.; and Cooper, N. R.. “The Stability of Prime Money Market Mutual Funds: Sponsor Support from 2007 to 2011.” Working Paper, Federal Reserve Bank of Boston (2012).CrossRefGoogle Scholar
Chen, Q.; Goldstein, I.; and Jiang, W.. “Payoff Complementarities and Financial Fragility: Evidence from Mutual Fund Outflows.” Journal of Financial Economics, 97 (2010), 239–262.CrossRefGoogle Scholar
Chernenko, S., and Sunderam, A.. “Frictions in Shadow Banking: Evidence from the Lending Behavior of Money Market Funds.” Review of Financial Studies, 27 (2014), 1717–1750.CrossRefGoogle Scholar
Duygan-Bump, B.; Parkinson, P. M.; Rosengren, E. S.; Suarez, G.; and Willen, P. S.. “How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility.” Journal of Finance, 68 (2013), 715–737.CrossRefGoogle Scholar
Gorton, G.; Lewellen, S.; and Metrick, A.. “The Safe Asset Share.” NBER Working Paper No. 17777 (2012).CrossRefGoogle Scholar
Gorton, G., and Metrick, A.. “Securitized Banking and the Run on the Repo.” Journal of Financial Economics, 104 (2012), 425–451.CrossRefGoogle Scholar
Kacperczyk, M., and Schnabl, P.. “When Safe Proved Risky: Commercial Paper during the Financial Crisis.” Journal of Economic Perspectives, 24 (2010), 29–50.CrossRefGoogle Scholar
Kacperczyk, M., and Schnabl, P.. “How Safe Are Money Market Funds?” Quarterly Journal of Economics, 128 (2013), 1073–1122.CrossRefGoogle Scholar
Krishnamurthy, A.; Nagel, S.; and Orlov, D.. “Sizing Up Repo.” Journal of Finance, 69 (2014), 2381–2417.CrossRefGoogle Scholar
Kroszner, R. S., and Strahan, P. E.. “Regulation & Deregulation of the U.S. Banking Industry: Causes, Consequences and Implications for the Future.” In Regulation, Rose, N., ed., Chicago, IL: University of Chicago Press (2006), 485–543.Google Scholar
Kroszner, R. S., and Strahan, P. E.. “Financial Regulatory Reform: Challenges Ahead.” American Economic Review, 101 (2011), 242–246.CrossRefGoogle Scholar
McCabe, P. E. “The Cross Section of Money Market Fund Risk and Financial Crises.” Working Paper, Federal Reserve Board of Governors (2010).CrossRefGoogle Scholar
Qian, M., and Tanyeri, B.. “Adverse Information and Mutual Fund Runs.” National University of Singapore and Bilkent University Working Paper, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1362492 (2011).CrossRefGoogle Scholar
Schmidt, L. D. W.; Timmerman, A. G.; and Wermers, R.. “Money Fund Runs.” Working Paper, available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1784445 (2013).Google Scholar