Investors’ appetite for money-like assets: The MMF industry after the 2014 regulatory reform

Marco Cipriani and Gabriele La Spada

Journal of Financial Economics, 2021, vol. 140, issue 1, 250-269

Abstract: This paper uses a quasi-natural experiment to estimate the premium for money-likeness. The 2014 Securities and Exchange Commission (SEC) reform of the money market fund (MMF) industry reduced the money-likeness of prime MMFs by increasing their information sensitivity, while leaving government MMFs unaffected. Investors fled from prime to government MMFs, with total outflows exceeding one trillion dollars. Using a difference-in-differences design, we estimate the premium for money-likeness to be between 20 and 30 basis points (bps). These premiums are not due to changes in investors’ risk tolerance or funds’ risk taking. Our results support recent developments in monetary theory identifying information insensitivity as a key feature of money.

Keywords: Money-like assets; Information sensitivity; Money market funds; Money market funds reform (search for similar items in EconPapers)
JEL-codes: E41 G23 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:140:y:2021:i:1:p:250-269

DOI: 10.1016/j.jfineco.2020.11.005

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