Sturm und Drang in money market funds: When money market funds cease to be narrow

Stephan Jank and Michael Wedow

Journal of Financial Stability, 2015, vol. 16, issue C, 59-70

Abstract: This paper investigates the returns and flows of German money market funds before and during the financial crisis of 2007/2008. The main finding of this paper is that, in liquid times, some money market funds (MMF) enhanced their returns by investing in riskier assets. By doing so they outperformed other MMFs, as long as liquidity in the market was high. Investing in riskier money market products, however, widens the typically narrow structure of MMFs and makes them vulnerable to withdrawals. When market liquidity declined during the subprime crisis, illiquid MMFs experienced withdrawals, while funds with safer and liquid portfolios functioned as a safe haven. As German MMFs calculate the value of their shares based on fluctuating net asset value, the findings inform the current debate on regulating MMFs.

Keywords: Money market funds; Liquidity crisis; Redemptions (search for similar items in EconPapers)
JEL-codes: G12 G20 G21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Sturm und Drang in money market funds: When money market funds cease to be narrow (2010)
Working Paper: Sturm und Drang in money market funds: when money market funds cease to be narrow (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:16:y:2015:i:c:p:59-70

DOI: 10.1016/j.jfs.2014.12.002

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