Investor size, liquidity and prime money market fund stress

Fernando Avalos and Fan Dora Xia

BIS Quarterly Review, 2021

Abstract: Massive redemptions at money market funds (MMFs) investing primarily in high-quality short-term private debt securities were an important feature of the market dislocations in March 2020. Building on previous studies of the underlying drivers, we find that large investors' withdrawals did not differentiate across prime institutional MMFs according to these funds' asset liquidity positions. We also find that, faced with large redemptions, the managers of these funds disposed of the less liquid securities in their portfolios, marking a departure from their behaviour in tranquil times. This is likely to have exacerbated market-wide liquidity shortages. After the Federal Reserve's announcement of the Money Market Mutual Fund Liquidity Facility, all funds strengthened their liquidity positions, with those hardest-hit by outflows attempting to catch up with peers.

JEL-codes: E58 G23 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:bisqtr:2103b

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