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Investors’ appetite for money-like assets: The MMF industry after the 2014 regulatory reform

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  • Cipriani, Marco
  • La Spada, Gabriele

Abstract

This paper uses a quasi-natural experiment to estimate the premium for money-likeness. The 2014 Securities and Exchange Commission (SEC) reform of the money market fund (MMF) industry reduced the money-likeness of prime MMFs by increasing their information sensitivity, while leaving government MMFs unaffected. Investors fled from prime to government MMFs, with total outflows exceeding one trillion dollars. Using a difference-in-differences design, we estimate the premium for money-likeness to be between 20 and 30 basis points (bps). These premiums are not due to changes in investors’ risk tolerance or funds’ risk taking. Our results support recent developments in monetary theory identifying information insensitivity as a key feature of money.

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  • Cipriani, Marco & La Spada, Gabriele, 2021. "Investors’ appetite for money-like assets: The MMF industry after the 2014 regulatory reform," Journal of Financial Economics, Elsevier, vol. 140(1), pages 250-269.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:1:p:250-269
    DOI: 10.1016/j.jfineco.2020.11.005
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    Cited by:

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    2. Borgonovo, Emanuele & Caselli, Stefano & Cillo, Alessandra & Masciandaro, Donato & Rabitti, Giovanni, 2021. "Money, privacy, anonymity: What do experiments tell us?," Journal of Financial Stability, Elsevier, vol. 56(C).
    3. Onali, Enrico & Mascia, Danilo V., 2022. "Corporate diversification and stock risk: Evidence from a global shock," Journal of Corporate Finance, Elsevier, vol. 72(C).
    4. repec:zbw:bofrdp:2021_002 is not listed on IDEAS
    5. Fricke, Daniel & Greppmair, Stefan & Paludkiewicz, Karol, 2022. "You can't always get what you want (where you want it): Cross-border effects of the US money market fund reform," Discussion Papers 03/2022, Deutsche Bundesbank.
    6. Sirio Aramonte & Andreas Schrimpf & Hyun Song Shin, 2023. "Non-bank financial intermediaries and financial stability," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 7, pages 147-170, Edward Elgar Publishing.
    7. Allen, Kyle & Saha, Pritam & Whitledge, Matthew & Winters, Drew, 2023. "Money market reforms:The effect on the commercial paper market," Journal of Banking & Finance, Elsevier, vol. 154(C).
    8. Alyssa G. Anderson & Wenxin Du & Bernd Schlusche, 2021. "Arbitrage Capital of Global Banks," Finance and Economics Discussion Series 2021-032, Board of Governors of the Federal Reserve System (U.S.).
    9. Lugo, Stefano, 2023. "Cost of monitoring and risk taking in the money market funds industry," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    10. Kenechukwu E. Anadu & Marco Cipriani & Ryan M. Craver & Gabriele La Spada, 2021. "COVID Response: The Money Market Mutual Fund Facility," Staff Reports 980, Federal Reserve Bank of New York.
    11. Thomas M. Eisenbach & Gregory Phelan, 2022. "Fragility of Safe Asset Markets," Staff Reports 1026, Federal Reserve Bank of New York.
    12. Järvenpää, Maija & Paavola, Aleksi, 2021. "Investor monitoring, money-likeness and stability of money market funds," Research Discussion Papers 2/2021, Bank of Finland.
    13. Kim Ristolainen, 2022. "Narrative Triggers of Information Sensitivity," Discussion Papers 156, Aboa Centre for Economics.

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    More about this item

    Keywords

    Money-like assets; Information sensitivity; Money market funds; Money market funds reform;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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