Money Funds Research Articles

The Impact of Scandals on Mutual Fund Performance, Money Flows and Fees

We examine the effects of fraud committed by mutual fund managers taking into account the dual responsibilities managers have for their employer firm and investors. Performance increases in the immediate aftermath of a scandal being reported, followed by a significant drop suggesting fund managers actively preempt the fallout from fraud disclosures. Investors who remain with a scandal fund under-perform by an average of 48 basis points in the subsequent year. Fraud is punished by reduced fund inflows to affected funds. Underperformance and money outflows are more severe with higher monetary fines, regulatory actions initiated by SEC, and the involvement of more than one regulatory body. Scandal funds reduce their expense ratios, possibly to retain and attract investors. This effort allows scandal funds to delay asset fire sales by up to a quarter. However, fund families reduce expenditure on marketing and distribution costs, likely to ameliorate the fallout from scandals by withdrawing affected funds from the limelight.

The Unintended Consequences of the Zero-Bound Policy

We study the impact of the zero lower bound interest rate policy on the industrial organization of the U.S. money fund industry. We find that in response to policies that maintain low interest rates, money funds: change their product offerings by investing in riskier asset classes; are more likely to exit the market; and reduce the fees they charge their investors. The consequence of fund closures resulting from interest rate policy is the relocation of resources in affected fund families and in the asset management industry in general, as well as decline in capital of issuers borrowing from money funds.

PetSavers news

Sue Paterson raised £2300 for PetSavers at the London Marathon and every year PetSavers has a strong team at the London 10k. The runners are joined by Peter Haseler who cycled the 969 miles from Land’s End to John O’Groats, all to raise money for PetSavers research funding.

Trends in procurement costs for HIV commodities: a 7-year retrospective analysis of global fund data across 125 countries.

Nearly 40% of Global Fund money goes toward procurement. However, no analyses have been published to show how costs vary across regions and time, despite the availability of procurement data collected through the Global Fund's price and quality reporting system. We analyzed data for the 3 most widely procured commodities for the prevention, diagnosis, and treatment of HIV. These were male condoms, HIV rapid tests, and the antiretroviral (ARV) combination of lamivudine/nevirapine/zidovudine. The compared costs, first across time (2005-2012), then across regions, and finally, between individual procurement reported through the price and quality reporting and pooled procurement reported through the Global Fund's voluntary pooled procurement system. All costs were adjusted for inflation and reported in US dollars. There were 2337 entries from 578 grants in 125 countries. The procurement cost for the ARV dropped substantially over the period, whereas those for condoms and HIV tests remained relatively stable. None of the commodity prices increased. Regional variations were pronounced for HIV tests, but minimal for condoms and the ARV. The unit cost for the 3-table ARV combination, for instance, varied between US$0.15 and US$0.23 in South Asia and the Eastern Europe/Central Asia regions, respectively, compared with a range of $0.23 (South Asia)-$1.50 (Eastern Europe/Central Asia) for a single diagnostic test. Pooled procurement lowered costs for condoms but not the other commodities. We showed how global procurement costs vary by region and time. Such analyses should be done more often to identify and correct market insufficiencies.

Evaluation of the Positive Re-Entry in Corrections Program

Two groups of male inmates (n = 31, n = 31) participated in the Positive Re-Entry in Corrections Program (PRCP). This positive psychology intervention focused on teaching offenders skills that facilitate re-entry into the community. Offenders participated in weekly lectures, discussions, and homework assignments focused on positive psychology principles. The two groups differed in duration of treatment (8 weeks and 12 weeks). Participants completed pre- and post-intervention measures of gratitude, hope, and life satisfaction. Using a 2 × 2 mixed design ANOVA, we hypothesized that the intervention (with two between-subjects levels of 8 and 12 weeks) and duration (with two repeated measures levels of pre and post) of treatment would moderate pre- to post-intervention change. Results indicated significant differences on pre- and post-intervention scores for both groups of offenders on all measures. The analysis did not yield statistically significant differences between groups, demonstrating no additive benefits from the inclusion of four additional sessions, thus saving time and money for correctional programming and funding. This research supports the use of positive psychology in prison interventions.

Gold, the 'Fear Trade' and Mr. Market

Recent history shows a high correlation between interest rates (both nominal and real) and the price of gold. Does this mean that 1) interest rates drive the price of gold, 2) gold drives interest rates, or 3) some unobserved factor has driven both the price of gold and interest rates. One possible unobserved factor is a “fear factor”. As the price of gold rose the amount of money invested in gold surged and as interest rates fell the amount of money in bond funds rose. This makes sense if investors truly believe that “less is more” and actively seek low prospective returns. However, another possibility is that a bull market in fear drove bull markets in both bonds and gold. If there is a “fear factor” then a decline in the level of fear will create a possibly unrewarding environment for gold and bonds. A challenge for investors is that, just as no one has ever spotted Warren Buffett’s Mr. Market, no one can unambiguously measure and spot fear.

Money Market Fund Reforms Long Overdue

To reduce implications for systemic, reform of money funds must combine short- and long-term approaches.

How Safe Are Money Market Funds?*

Abstract We examine the risk-taking behavior of money market funds during the financial crisis of 2007–2010. We find that (1) money market funds experienced an unprecedented expansion in their risk-taking opportunities; (2) funds had strong incentives to take on risk because fund inflows were highly responsive to fund yields; (3) funds sponsored by financial intermediaries with more money fund business took on more risk; and (4) funds suffered runs as a result of their risk taking. This evidence suggests that money market funds lack safety because they have strong incentives to take on risk when the opportunity arises and are vulnerable to runs.

Subjective Knowledge in Consumer Financial Decisions

The authors propose that attempts to increase consumers’ objective knowledge (OK) regarding financial instruments can deter willingness to invest when such attempts diminish consumers’ subjective knowledge (SK). In four studies, the authors use different SK manipulations and investment products to show that investment decisions are influenced by SK, independent of OK. Specifically, they find that (1) willingness to pursue a risky investment increases when SK is high (vs. low) relative to a prior investment choice (Study 1); (2) willingness to enroll in a retirement saving program is enhanced by asking consumers an easy (vs. difficult) question about finance, thereby increasing SK (Study 2); (3) technically elaborating information about a mutual fund diminishes SK regarding that investment and decreases choice of that fund (Study 3); and (4) consumers invest less money in funds when missing information is made salient, holding the objective investment information constant (Study 4). Furthermore, the effects in Studies 2–4 are mediated by participants’ self-rated SK. The authors propose that effective financial education must focus not only on imparting relevant information and enhancing OK but also on promoting higher levels of SK.

Biochemist To Lead NIH Institute

The National Institutes of Health has selected Jon R. Lorsch, a biochemist and leader in RNA biology, to direct the National Institute of General Medical Sciences (NIGMS). Lorsch, a professor at Johns Hopkins University School of Medicine, expects to make the move to NIH this summer. He will replace Acting Director Judith H. Greenberg, who has been leading the institute since Jeremy M. Berg left for a position at the University of Pittsburgh in July 2011. As NIGMS director, Lorsch will oversee a budget of about $2.4 billion. The majority of that money funds basic research in the biomedical sciences, including more chemistry-related research than in any of the other 27 NIH institutes and centers. NIGMS supports about 11% of NIH-funded grants, or about 4,600 grants, each year. The institute is also known for supporting research training and programs intended to increase the diversity of the biomedical workforce. Calling Lorsch ...

How Safe are Money Market Funds?

We examine the risk-taking behavior of money market funds during the fi nancial crisis of 2007-2010. We find that: (1) money market funds experienced an unprecedented expansion in their risk-taking opportunities; (2) funds had strong incentives to take on risk because fund inflows were highly responsive to fund yields; (3) funds sponsored by financial intermediaries with more money fund business took on more risk; (4) funds suff ered runs as a result of their risk taking. This evidence suggests that money market funds lack safety because they have strong incentives to take on risk when the opportunity arises and are vulnerable to runs.

U.S. Prime Money Market Funds after Lehman: The Quest to Regain Safe-Asset-Status

The behavior of MMFs since fall 2008 suggests that in evaluating the systemic risk posed by prime MMFs it is not enough to focus on the funds' ability to meet large investor withdrawals during severe stress periods. Instead, today it appears to be even more important to look at the tendency of MMFs to drastically cut exposure to suspicious borrowers at the first signs of trouble. In this sense, money funds may run first in order to either preempt or slow down runs on themselves. The paper argues that this behavior by MMFs can be explained by their quest to regain their as a asset which they enjoyed prior to September 2008 and lost subsequently. The loss of safe asset status can certainly be attributed to key events during fall 2008 such as the breaking of the buck by the Reserve Primary Fund. However, the paper stresses the importance of other factors at play. In particular, it is argued that the rules and regulations governing MMFs and asset alternatives such as bank deposits changed notably during the last couple of years and in a way that weakened the sector's competitive position. If policymakers want to preserve the significance of prime MMFs, while increasing their stability as a funding tool, it might be necessary to weaken the position of alternative, cash equivalent assets. However, it is unclear what the overall benefit to financial stability of such an approach would be.

German Open Ended Real Estate Fund Performance – The Impact of Liquidity

Summary/Zusammenfassung German Open Ended Real Estate Fund Performance – The Impact of Liquidity The liquidity crisis in the German Open-Ended Real Estate Funds (GOEREFs) industry was characterized by large outflows of money in several funds. Large and ongoing redemptions of fund shares held by both institutional and private / retail investors led to suspensions of redemptions, termination of funds and, ultimately, a new law. This study provides the most comprehensive overview of how the funds performed and how pronounced the differences between classes of funds in the €80bn+ industry are. Using not only the net asset values of the funds as reported by the fund management companies, but the prices obtained at the secondary market when redemptions are suspended, indexes are constructed in order to provide a clear view of the performance of GOEREFs when the most relevant prices are used – those that may be achieved directly, rather than using book values. In this sense, the indexes provide a liquidity-corre...

“If you scale back now, you probably lose everything”: State Tax Incentives and the Motion Picture Industry

IntroductionAt the 2013 MEIEA Summit in New Orleans, Philip Mann and Stephen M. Hamner, both of the Louisiana Economic Development Office, presented An Exploration of Louisiana's Tax Credits for Film and Music, an overview of the past and present initiatives of Louisiana to attract entertainment production projects to the state. While the panel discussion focused specifically on the Sound Recording Tax Incentive program in Louisiana, many states grapple with their own tax incentives for film production. The intent of this paper is to explore the context of these state tax incentive programs for film production by looking at 1) the types of incentives offered to film studios and producers, 2) the ten largest state programs, and 3) the economic arguments pro and con for offering film production tax incentive programs.BackgroundAs Mr. Mann and Mr. Hamner stated, Louisiana was the first state (1992) to offer incentives to lure film production away from the traditional film capitals of California and New York. For the first ten years of its existence, Louisiana's program underperformed (Grand 2006, 792-793), and any film production that had been lured away from Los Angeles or New York typically went to Vancouver, British Columbia. In order to develop North in the 1990s, provincial officials used their own tax incentives and the favorable exchange rate between the U.S. and the Canadian dollars to develop the personnel and infrastructure necessary to offer filmmakers a viable alternative to Los Angeles and New York. However, the early lead that Vancouver had in becoming the third film capital evaporated as other U.S. states began offering programs of their own.1In 2002, and again in 2005, Louisiana retooled its film production incentive program to address the concerns of film producers and to align its programs more closely with the goals of state officials. By the time of Louisiana's 2005 legislation rewrite, fourteen other states were offering tax incentives for film production, worth an estimated total of US$129 million, considerably more than the total of $1 million from five states offered at the time of the 2002 rewrite.As recently as 2010, 43 states offered tax incentives to Hollywood worth an estimated $1.5 billion. Fearing being left behind by regional peers, states were competing with each other to offer the most attractive incentive programs, all with the goal of big Hollywood spending in their states. As the effects of the Great Recession continued and questions about state budget priorities for these types of programs were raised, six states admitted defeat (or reality) and dropped their programs, leaving 37 states to carry on as of 2013.But what were these 37 states carrying on? In many respects, they were carrying on a marketing campaign in which state tax incentives became the latest free or cheap money tool Hollywood used to finance its output (after the drying up of the hedge fund money of the 2000s and the German tax shelters of the 1990s). Boosters for these types of programs presented state legislatures with the evidence of the success of the Louisiana and the New Mexico programs,2 and their burgeoning film projects, as proof positive that state tax incentives could work. State film offices, local production and post-production houses, and local union chapters joined forces with film studios and producers to induce legislators to implement, expand, or extend film production tax incentives.As the states began to offer film production tax incentive programs, the next stage of the competition was set: that of offering increasingly attractive tax incentives to bring Hollywood knocking. The late entrants to the competition, analyzing the programs of the early adopters, tailored their programs to maximize in-state film production potential,3 culminating in the program offered by Michigan in 2008 (since curtailed) that essentially gave qualified productions a 42% credit on film production expenses incurred in a core community (Idelson 2012). …

Dollar Funding and the Lending Behavior of Global Banks

A large share of dollar-denominated lending is done by non-U.S. banks, particularly European banks. We present a model in which such banks cut dollar lending more than euro lending in response to a shock to their credit quality. Because these banks rely on wholesale dollar funding, while raising more of their euro funding through insured retail deposits, the shock leads to a greater withdrawal of dollar funding. Banks can borrow in euros and swap into dollars to make up for the dollar shortfall, but this may lead to violations of covered interest parity (CIP) when there is limited capital to take the other side of the swap trade. In this case, synthetic dollar borrowing becomes expensive, which causes cuts in dollar lending. We test the model in the context of the Eurozone sovereign crisis, which escalated in the second half of 2011 and resulted in U.S. money-market funds sharply reducing the funding provided to European banks. Coincident with the contraction in dollar funding, there were significant violations of euro-dollar CIP. Moreover, dollar lending by Eurozone banks fell relative to their euro lending in both the U.S. and Europe; this was not the case for U.S. global banks. Finally, European banks that were more reliant on money funds experienced bigger declines in dollar lending.

Dollar Funding and the Lending Behavior of Global Banks

A large share of dollar-denominated lending is done by non-U.S. banks, particularly European banks. We present a model in which such banks cut dollar lending more than euro lending in response to a shock to their credit quality. Because these banks rely on wholesale dollar funding, while raising more of their euro funding through insured retail deposits, the shock leads to a greater withdrawal of dollar funding. Banks can borrow in euros and swap into dollars to make up for the dollar shortfall, but this may lead to violations of covered interest parity (CIP) when there is limited capital to take the other side of the swap trade. In this case, synthetic dollar borrowing becomes expensive, which causes cuts in dollar lending. We test the model in the context of the Eurozone sovereign crisis, which escalated in the second half of 2011 and resulted in U.S. money-market funds sharply reducing their funding to European banks. Coincident with the contraction in dollar funding, there were significant violations of euro-dollar CIP. Moreover, dollar lending by Eurozone banks fell relative to their euro lending in both the U.S. and Europe this was not the case for U.S. global banks. Finally, European banks that were more reliant on money funds experienced bigger declines in dollar lending.

Smart Money in Malaysian Islamic and Conventional Equity Funds

This paper undertakes a comparative analysis of the smart money effect in mutual funds - whereby investors are able to identify funds that subsequently perform well - in Malaysian Islamic and conventional domestic equity funds. We find that Islamic equity fund investors are unable to identify funds that will outperform benchmarks in the future. However, these same investors have some ability to identify poorly performing funds and relocate their funds accordingly. This contradicts our findings regarding their conventional counterparts, such that conventional equity fund investors are generally able to identify better performing funds and modify their investments in light of this information. The main key implications are as follows. First, Islamic equity investors naively chasing recently highly performing funds only incidentally benefit from mutual fund momentum strategies. Second, fund managers may be able to take advantage of a ‘dumb money’ effect found among Islamic equity fund investors in that they appear most concerned with only very poor performance in determining the flow of funds, not so much a lack of superior performance. Finally, high search costs may be one reason why investors naively chase past better performing funds.

The SECs Attempted Use Of Money Market Mutual Fund Shadow Prices To Control Risk Taking By Money Market Mutual Funds

One of the major advantages of money market mutual funds as a short term cash investment vehicle is that they are always purchased and sold for $1 per share. That constant $1 share price is maintained, despite the obvious fact that the funds holdings are frequently changing value, through a permissive SEC regulation that entitles money funds to value their portfolio securities at amortized cost rather than market value. At the same time, funds have always monitored their true market value in what is referred to as the funds shadow price, disclosed on a semi-annual basis. Starting in December, 2010, the SEC ordered money funds to publish their shadow prices monthly in hopes that investors would take notice and provide market discipline to money funds that failed to keep the funds market value sufficiently close to $1 per share. The expressed intention of the SEC was that investors would restrain money market fund managers from taking undue risks. This study analyzes whether the SECs strategy is working. By assessing the relationship between money market funds shadow prices and subsequent changes in net assets, the authors can look for evidence of whether the market is performing the function the SEC intends. The authors have examined monthly disclosures of shadow prices and asset changes for over 100 money market funds since the funds commenced reporting. Through a series of linear regression analyses, the authors have found no relevant correlation between money funds shadow prices and investor activity. The ramifications of this lack of correlation are potentially significant, particularly now as financial regulators are concerned that money fund holdings of European banks might transmit the current credit deterioration in Greece to U.S. markets. The SEC and other financial regulators are counting on disclosure of shadow prices as a tool to avoid the kind of risk taking that ultimately contributed to the credit market freeze experienced in 2008. If that tool is, in fact, not working, the SEC may be obliged to attempt alternative strategies. The authors discuss the policy implications of their findings.

Noise Traders and Cultural Factors: The Japanese Rokuyo Effect Evidence Implications For Investor Sentiment Induced Return Anomalies

This paper examines unique cultural features associated with the Japanese calendar known as rokuyo, which classifies days into six categories of varying levels of favorable/unfavorable sentiment days. Prior to the internationalization of Japanese financial markets in the early 1980s, rokuyo has a significant impact on both daily trading volume and returns. Thereafter it impact is greatly diminished. This research is consistent with prior studies that cultural factors and superstition affect investment decisions. The results support the hypothesis that noise trading induced return patterns, in general are not persistent over time. Anecdotal evidence is presented supporting the hypothesis investor sentiment influences equity prices through buying and selling pressure induced by dynamic money flow patterns precipitated by the evolutionary nature of financial markets. Additional evidence is provided by examination of the U.S. Monday effect and a proxy for mutual fund money flows over the period 1970-2011.

Cash transfers and child well-being in Singapore: an exploratory study of the School Pocket Money Fund

This exploratory study aimed to identify the extent to which a nationwide cash transfer programme, The Straits Times' School Pocket Money Fund (SPMF), was associated with the education performance of children from low-income families in Singapore. Data were collected from 400 pairs of parents and children of SPMF, 172 school reports, and 35 in-depth interviews. Descriptive and correlation analyses were run. We found that SPMF may be a supporting factor in helping children stay in school. Additionally, receipt of SPMF was positively related to children's performance, level of engagement in school, and a higher level of confidence in achieving educational goals.