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Market Power and Money Market Funds Risk-Taking

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  • Yue Cai

    (Faculty of Economics, Gakushuin University)

Abstract

This paper investigates the relationship between market power and risk-taking behavior in China's money market funds. Using a dual methodological approach that combines demand estimation and a natural experiment, we demonstrate that increased market power significantly decreases funds' risk-taking. Our analysis proceeds in two stages: 1) We derive fund-specific investor elasticities through demand estimation as a measure of market power. 2) We exploit the staggered introduction of MMFs for digital transactions on Alipay, the world's largest digital payment platform, as a natural experiment. Our findings reveal that upon becoming eligible for digital transactions, funds experience a decrease in investors' demand elasticity; this increase in market power subsequently leads to reduced risk-taking behavior.

Suggested Citation

  • Yue Cai, 2025. "Market Power and Money Market Funds Risk-Taking," Working Papers 2411, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2411
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