Abstract
This study empirically examines the impact that SEC amendments to rule 2a-7 had on retail and institution-only taxable and tax-exempt money market mutual funds (MMFs). We model the demand for these funds and test whether demand structurally changed after the amendments were introduced in 1990. The results are consistent with the notion that retail and institutional investors have yield and transaction motives for holding MMFs and that Treasury bills and bonds are viewed as substitutes. Investors in retail MMFs were generally unaware of the amendments and their demand was largely unaltered. While the demand for MMFs by institutional investors increased after the amendments, it is likely due to other factors that caused a general increase in demand by institution-only MMFs.
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