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Adequate Liquid Provision for a Run Preventing Contract

Author

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  • JaeJoon Han

    () (Inha University)

Abstract

We extend Ross and Cooper (1998) and find an adequate liquidate provision as a function of liquidity cost in CRRA (Constant Relative Risk Aversion) environment. Our study shows that a RPC (run preventing contract) in a MMMF (money market mutual fund) requires a higher amount of liquidity provision when the capital loss becomes greater in a credit crunch period.

Suggested Citation

  • JaeJoon Han, 2011. "Adequate Liquid Provision for a Run Preventing Contract," Economics Bulletin, AccessEcon, vol. 31(4), pages 2986-2995.
  • Handle: RePEc:ebl:ecbull:eb-11-00079
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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I4-P271.pdf
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    More about this item

    Keywords

    liquidation cost; fund run; illiquid investment; liquid investment;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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