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Runs on Money Market Mutual Funds

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  • Lawrence Schmidt
  • Allan Timmermann
  • Russ Wermers

Abstract

We study daily money market mutual fund flows at the individual share class level during September 2008. This fine granularity of data allows new insights into investor and portfolio holding characteristics conducive to run risk in cash-like asset pools. We find that cross-sectional flow data observed during the week of the Lehman failure are consistent with key implications of a simple model of coordination with incomplete information and strategic complementarities. Similar conclusions follow from daily models fitted to capture dynamic interactions between investors with differing levels of sophistication within the same money fund, holding constant the underlying portfolio.

Suggested Citation

  • Lawrence Schmidt & Allan Timmermann & Russ Wermers, 2016. "Runs on Money Market Mutual Funds," American Economic Review, American Economic Association, vol. 106(9), pages 2625-2657, September.
  • Handle: RePEc:aea:aecrev:v:106:y:2016:i:9:p:2625-57
    Note: DOI: 10.1257/aer.20140678
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    1. repec:eee:jfinec:v:129:y:2018:i:1:p:87-110 is not listed on IDEAS
    2. Nathan Foley-Fisher & Borghan Narajabad & Stephane Verani, 2016. "Securities Lending as Wholesale Funding: Evidence from the U.S. Life Insurance Industry," NBER Working Papers 22774, National Bureau of Economic Research, Inc.
    3. Roberto Robatto, 2019. "Systemic Banking Panics, Liquidity Risk, and Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 20-42, October.
    4. repec:eee:jfinec:v:126:y:2017:i:3:p:592-613 is not listed on IDEAS
    5. Agarwal, Vikas & Zhao, Haibei, 2016. "Interfund lending in mutual fund families: Role of internal capital markets," CFR Working Papers 15-09 [rev.], University of Cologne, Centre for Financial Research (CFR).
    6. Nathan Foley-Fisher & CARLOS RAMIREZ, 2018. "A Network Model for Financial Stability Monitoring," 2018 Meeting Papers 917, Society for Economic Dynamics.
    7. Majid Haghani Rizi & N. Kundan Kishor & Hardik A. Marfatia, 2019. "The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market," The European Journal of Finance, Taylor & Francis Journals, vol. 25(5), pages 395-414, March.
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    9. Lewis, Craig M. & Schlag, Christian, 2014. "What does US money market mutual fund reform portend for the European Union?," SAFE White Paper Series 24, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.
    10. Mathias S. Kruttli & Phillip J. Monin & Sumudu W. Watugala, 2017. "Investor Concentration, Flows, and Cash Holdings : Evidence from Hedge Funds," Finance and Economics Discussion Series 2017-121, Board of Governors of the Federal Reserve System (US).
    11. Sultanum, Bruno, 2018. "Financial fragility and over-the-counter markets," Journal of Economic Theory, Elsevier, vol. 177(C), pages 616-658.
    12. O. de Bandt & J.-C. Héam & C. Labonne & S. Tavolaro, 2013. "Measuring Systemic Risk in a Post-Crisis World," Débats économiques et financiers 6, Banque de France.
    13. Ahnert, Toni & Elamin, Mahmoud, 2014. "The Effect of Safe Assets on Financial Fragility in a Bank-Run Model," Working Papers (Old Series) 1437, Federal Reserve Bank of Cleveland.
    14. Mathias S. Kruttli & Phillip J. Monin & Sumudu W. Watugala, 2017. "Investor Concentration, Flows, and Cash Holdings: Evidence from Hedge Funds," Working Papers 17-07, Office of Financial Research, US Department of the Treasury.
    15. Gallagher, Emily & Schmidt, Lawrence & Timmermann, Allan G & Wermers, Russ, 2017. "Transparency, Investor Information Acquisition, and Money Market Fund Risk Rebalancing during the 2011-12 Eurozone Crisis," CEPR Discussion Papers 11895, C.E.P.R. Discussion Papers.
    16. Toni Ahnert, 2016. "Rollover Risk, Liquidity and Macroprudential Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(8), pages 1753-1785, December.
    17. Robatto, Roberto, 2017. "Flight to liquidity and systemic bank runs," ESRB Working Paper Series 38, European Systemic Risk Board.
    18. Luck, Stephan & Schempp, Paul, 2014. "Banks, shadow banking, and fragility," Working Paper Series 1726, European Central Bank.
    19. repec:eee:ecofin:v:46:y:2018:i:c:p:89-102 is not listed on IDEAS
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    21. Emily Gallagher & Sean Collins, 2016. "Money Market Funds and the Prospect of a US Treasury Default," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-44, March.
    22. Jonathan Witmer, 2017. "Strategic Complementarities and Money Market Fund Liquidity Management," Staff Working Papers 17-14, Bank of Canada.
    23. Hurlin, Christophe & Iseli, Grégoire & Pérignon, Christophe & Yeung, Stanley, 2019. "The counterparty risk exposure of ETF investors," Journal of Banking & Finance, Elsevier, vol. 102(C), pages 215-230.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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