Transparency, Investor Information Acquisition, and Money Market Fund Risk Rebalancing during the 2011-12 Eurozone Crisis

We study investor redemptions and portfolio rebalancing decisions of money market mutual funds (MMFs) during the Eurozone crisis. We exploit the multiple shareclass structure of the MMF industry and the detailed portfolio holdings disclosure required by 2010 regulatory changes to highlight costs and benefits of increased transparency in short-term funding markets. Consistent with theoretical predictions of models featuring costly (and incomplete) information acquisition, investors with the lowest information acquisition costs are most responsive to cross-sectional heterogeneity in funds' exposures to Eurozone securities. Moreover, managers catering to these investors disproportionately shift their portfolios away from the riskiest and most information-sensitive securities.