Working Paper: CEPR ID: DP14375
Authors: Marco Cipriani; Gabriele La Spada
Abstract: This paper uses a quasi-natural experiment to estimate the premium for money-likeness. The 2014 SEC reform of the money market fund (MMF) industry reduced the money-likeness of prime MMFs by increasing their information sensitivity, while leaving government MMFs unaffected. Investors fled from prime to government MMFs, with total outflows exceeding 1 trillion dollars. Using a difference-in-differences design, we estimate the premium for money-likeness to be between 20 and 30 basis points. These premiums are not due to changes in investors' risk tolerance or funds' risk taking. Our results support recent developments in monetary theory identifying information insensitivity as a key feature of money.
Keywords: money-like assets; information sensitivity; money market funds; money market funds reform
JEL Codes: E41; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2014 SEC reform (G18) | premium for money-likeness (E41) |
| 2014 SEC reform (G18) | retail investors' demand for premium (G19) |
| 2014 SEC reform (G18) | institutional investors' demand for premium (G23) |
| 2014 SEC reform (G18) | flows from prime MMFs to government MMFs (E50) |
| premium for money-likeness (E41) | flows from prime MMFs to government MMFs (E50) |