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Liability Structure and Risk Taking: Evidence from the Money Market Fund Industry

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  • Baghai, Ramin P.
  • Giannetti, Mariassunta
  • Jäger, Ivika

Abstract

How does the structure of financial intermediaries’ liabilities affect their asset holdings? We investigate the consequences of the 2014 money market fund (MMF) reform, which imposed redemption gates and liquidity fees on prime MMFs and forced prime funds marketed to institutional investors to switch from constant to floating net asset value. These changes made prime MMFs’ liabilities less money-like. As a consequence, the affected MMFs experienced an increase in flow–performance sensitivity and started taking more risks. In addition, the total funding provided by MMFs to the corporate sector, and especially to safer issuers, has decreased.

Suggested Citation

  • Baghai, Ramin P. & Giannetti, Mariassunta & Jäger, Ivika, 2022. "Liability Structure and Risk Taking: Evidence from the Money Market Fund Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(5), pages 1771-1804, August.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:5:p:1771-1804_4
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    Cited by:

    1. Yue Cai, 2025. "Market Power and Money Market Funds Risk-Taking," Working Papers 2411, Waseda University, Faculty of Political Science and Economics.
    2. Allen, Kyle D. & Winters, Drew B., 2020. "Crisis regulations: The unexpected consequences of floating NAV for money market funds," Journal of Banking & Finance, Elsevier, vol. 117(C).

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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