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The response of money market fund investors and managers to government shutdowns

Author

Listed:
  • Kyle D. Allen

    (Boise State University)

  • Ahmed Baig

    (Boise State University)

  • Drew B. Winters

    (Texas Tech University)

Abstract

We examine whether impending government shutdowns affect money market fund (MMF) investors and managers. Research suggests that market participants place increased risk on US Treasury Bills around government shutdown periods. There are three sets of decision makers in our sample: retail MMF investors, institutional MMF investors, and MMF investment managers. We ask the question; as the country moves toward a federal government shutdown do investors exit MMFs and do MMF managers shorten their maturities? In general, we find that fund managers did little to respond to government shutdowns. Institutional investors withdrew funds from MMFs (both Government and Prime). Retail investors moved funds into MMFs and moved into both Prime and Government funds.

Suggested Citation

  • Kyle D. Allen & Ahmed Baig & Drew B. Winters, 2024. "The response of money market fund investors and managers to government shutdowns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(1), pages 214-237, March.
    • Handle: RePEc:spr:jecfin:v:48:y:2024:i:1:d:10.1007_s12197-023-09651-w
    DOI: 10.1007/s12197-023-09651-w
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    References listed on IDEAS

    as
    1. Liu, Pu & Shao, Yingying & Yeager, Timothy J., 2009. "Did the repeated debt ceiling controversies embed default risk in US Treasury securities?," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1464-1471, August.
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    3. Nippani, Srinivas & Liu, Pu & Schulman, Craig T., 2001. "Are Treasury Securities Free of Default?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(2), pages 251-265, June.
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    5. Zivney, Terry L & Marcus, Richard D, 1989. "The Day the United States Defaulted on Treasury Bills," The Financial Review, Eastern Finance Association, vol. 24(3), pages 475-489, August.
    6. 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).
    7. Strahan, Philip E. & Tanyeri, Başak, 2015. "Once Burned, Twice Shy: Money Market Fund Responses to a Systemic Liquidity Shock," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(1-2), pages 119-144, April.
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    More about this item

    Keywords

    Money Market Funds; Government Shutdowns; Retail Investors;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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