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Investor Information Acquisition and Money Market Fund Risk Rebalancing during the 2011–2012 Eurozone Crisis

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  • Emily A Gallagher
  • Lawrence D W Schmidt
  • Allan Timmermann
  • Russ Wermers

Abstract

We study investor redemptions and portfolio rebalancing decisions of prime money market mutual funds (MMFs) during the Eurozone crisis. We find that sophisticated investors selectively acquire information about MMFs’ risk exposures to Europe, which leads managers to withdraw funding from information-sensitive European issuers. That is, MMF managers, particularly those serving the most sophisticated investors, selectively adjust their portfolio risk exposures to avoid information-sensitive European risks, while maintaining or increasing risk exposures to other regions. This mechanism helps to explain the occurrence of selective “dry-ups” in debt markets where delegation is common and returns to information production are usually low.Received December 15, 2016; editorial decision April 24, 2019 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Emily A Gallagher & Lawrence D W Schmidt & Allan Timmermann & Russ Wermers, 2020. "Investor Information Acquisition and Money Market Fund Risk Rebalancing during the 2011–2012 Eurozone Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1445-1483.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:4:p:1445-1483.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz071
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    Cited by:

    1. Dimitris Papanikolaou & Lawrence D W Schmidt, 2022. "Working Remotely and the Supply-Side Impact of COVID-19 [The unprecedented stock market reaction to COVID-19]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 12(1), pages 53-111.
    2. Fernando Avalos & Dora Xia, 2021. "Investor size, liquidity and prime money market fund stress," BIS Quarterly Review, Bank for International Settlements, March.
    3. Asano, Koji, 2024. "Managing financial expertise," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 351-365.
    4. Kenechukwu E. Anadu & Pablo D. Azar & Catherine Huang & Marco Cipriani & Thomas M. Eisenbach & Gabriele La Spada & Mattia Landoni & Marco Macchiavelli & Antoine Malfroy-Camine & J. Christina Wang, 2023. "Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?," Staff Reports 1073, Federal Reserve Bank of New York.
    5. Lugo, Stefano, 2023. "Cost of monitoring and risk taking in the money market funds industry," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    6. Abou Tanos, Barbara & Jimenez-Garcès, Sonia, 2022. "Foreign investments during financial crises: Institutional investors’ informational skills create value when familiarity does not," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    7. David Cashin & Erin E. Syron Ferris & Elizabeth Klee, 2023. "Treasury Safety, Liquidity, and Money Premium Dynamics: Evidence from Debt Limit Impasses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1475-1506, September.
    8. Edoardo Martino, 2022. "Getting bank governance right," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(3), pages 302-321, September.
    9. Fricke, Daniel & Greppmair, Stefan & Paludkiewicz, Karol, 2024. "You can’t always get what you want (where you want it): Cross-border effects of the US money market fund reform," Journal of International Economics, Elsevier, vol. 147(C).

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