Skip to main content Accessibility help
×
Home

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

  • Philip E. Strahan (a1) and Başak Tanyeri (a2)

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.

Copyright

Corresponding author

*Corresponding author: philip.strahan@bc.edu

References

Hide All
Acharya, V.; Schnabl, P.; and Suarez, G.. “Securitization without Risk Transfer.” Journal of Financial Economics, 107 (2013), 515536.
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).
Chen, Q.; Goldstein, I.; and Jiang, W.. “Payoff Complementarities and Financial Fragility: Evidence from Mutual Fund Outflows.” Journal of Financial Economics, 97 (2010), 239262.
Chernenko, S., and Sunderam, A.. “Frictions in Shadow Banking: Evidence from the Lending Behavior of Money Market Funds.” Review of Financial Studies, 27 (2014), 17171750.
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), 715737.
Gorton, G.; Lewellen, S.; and Metrick, A.. “The Safe Asset Share.” NBER Working Paper No. 17777 (2012).
Gorton, G., and Metrick, A.. “Securitized Banking and the Run on the Repo.” Journal of Financial Economics, 104 (2012), 425451.
Kacperczyk, M., and Schnabl, P.. “When Safe Proved Risky: Commercial Paper during the Financial Crisis.” Journal of Economic Perspectives, 24 (2010), 2950.
Kacperczyk, M., and Schnabl, P.. “How Safe Are Money Market Funds?” Quarterly Journal of Economics, 128 (2013), 10731122.
Krishnamurthy, A.; Nagel, S.; and Orlov, D.. “Sizing Up Repo.” Journal of Finance, 69 (2014), 23812417.
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), 485543.
Kroszner, R. S., and Strahan, P. E.. “Financial Regulatory Reform: Challenges Ahead.” American Economic Review, 101 (2011), 242246.
McCabe, P. E. “The Cross Section of Money Market Fund Risk and Financial Crises.” Working Paper, Federal Reserve Board of Governors (2010).
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).
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).

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed