Runs on Money Market Mutual Funds

Abstract

This paper studies daily investor flows to and from each money market mutual fund during the nine-month period prior to and including the money fund crisis of September 2008. We focus on the determinants of flows in the prime money fund category to shed light on the covariates of money fund runs, since this category was, by far, the most heavily impacted by the money fund crisis. We find that institutional investors moved their money simultaneously (or with a one-day delay) into or out of prime money funds, especially within the same fund family complex. Specifically, during September 2008, flows in a given prime institutional fund are strongly correlated with same-day flows in all other same-complex prime institutional funds, indicating that the money fund crisis was especially focused on certain types of fund complexes. To illustrate, a daily outflow of 1% of total assets from other same-complex prime institutional money funds predicts, on average, a 0.92% outflow in a given prime institutional money fund during the same day; by contrast, prime fund flows are not correlated with same-day, different complex prime fund flows. We also find that investors are sensitive to the liquidity of money fund holdings: correlated flow patterns are less likely to occur in money funds with greater levels of securities with very short maturity (seven days or less). Our analysis also suggests that prime retail flows, to some degree, follow lagged prime institutional flows, although Treasury intervention ended the crisis before substantial retail “contagion” occurred.