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Interest-rate and calendar-time effects in money market fund and bank deposit cash flows

Author

Listed:
  • Vladimir Kotomin

    ()

  • Stanley Smith

    ()

  • Drew Winters

    ()

Abstract

We examine the sensitivities of aggregate balances of retail and institutional money market funds (MMFs) and their potential substitutes, bank deposits, to changes in short-term interest rates while controlling for calendar-time effects. We find that institutional MMF and time deposit cash flows are sensitive to recent changes in short-term interest rates. Institutional MMF investors appear to take advantage of arbitrage opportunities created by MMFs using the amortized cost technique. Retail MMF investors are much less responsive to changes in interest rates. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Vladimir Kotomin & Stanley Smith & Drew Winters, 2014. "Interest-rate and calendar-time effects in money market fund and bank deposit cash flows," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(1), pages 84-95, January.
  • Handle: RePEc:spr:jecfin:v:38:y:2014:i:1:p:84-95
    DOI: 10.1007/s12197-011-9210-y
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    References listed on IDEAS

    as
    1. Mark D. Griffiths & Drew B. Winters, 2005. "The Turn of the Year in Money Markets: Tests of the Risk-Shifting Window Dressing and Preferred Habitat Hypotheses," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1337-1364, July.
    2. Park, Sang Yong & Reinganum, Marc R., 1986. "The puzzling price behavior of treasury bills that mature at the turn of calendar months," Journal of Financial Economics, Elsevier, vol. 16(2), pages 267-283, June.
    3. Lyon, Andrew B, 1984. " Money Market Funds and Shareholder Dilution," Journal of Finance, American Finance Association, vol. 39(4), pages 1011-1020, September.
    4. Kotomin, Vladimir & Smith, Stanley D. & Winters, Drew B., 2008. "Preferred habitat for liquidity in international short-term interest rates," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 240-250, February.
    5. Vladimir Kotomin & Drew Winters, 2006. "Quarter-End Effects in Banks: Preferred Habitat or Window Dressing?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(1), pages 61-82, February.
    6. Ogden, Joseph P., 1987. "The End of the Month as a Preferred Habitat: A Test of Operational Efficiency in the Money Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 329-343, September.
    7. Simon, David P., 1994. "Further evidence on segmentation in the treasury bill market," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 139-151, January.
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