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Strategic complementarities and money market fund liquidity management

Author

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  • Witmer, Jonathan

Abstract

I use a unique institutional feature of money market funds to identify whether funds hold additional liquidity to guard against and prevent potential investor runs. Specifically, some funds are used as a cash management vehicle for related entities, such as other funds in the fund family. These “internal” funds should experience less outflows during market stress, and should thus have less need to hold this additional liquidity. Indeed, these “internal” prime money market funds do hold lower liquidity than other prime funds. This effect is most pronounced at quarter ends, when there is an exogenous reduction in cash demand from non-US bank dealers.

Suggested Citation

  • Witmer, Jonathan, 2019. "Strategic complementarities and money market fund liquidity management," Journal of Financial Intermediation, Elsevier, vol. 38(C), pages 58-68.
    • Handle: RePEc:eee:jfinin:v:38:y:2019:i:c:p:58-68
    DOI: 10.1016/j.jfi.2018.07.002
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    Citations

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    Cited by:

    1. Abbas Hejri, 2022. "On the recent developments of mutual funds with fixed‐income holdings: a systematic review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2313-2338, June.
    2. repec:zbw:bofrdp:2021_002 is not listed on IDEAS
    3. Järvenpää, Maija & Paavola, Aleksi, 2021. "Investor monitoring, money-likeness and stability of money market funds," Bank of Finland Research Discussion Papers 2/2021, Bank of Finland.
    4. Järvenpää, Maija & Paavola, Aleksi, 2021. "Investor monitoring, money-likeness and stability of money market funds," Research Discussion Papers 2/2021, Bank of Finland.

    More about this item

    Keywords

    Money market mutual funds; Shadow Banking; Regulation; Repo;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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