Released at an event on October 16, this paper analyzes how money market mutual funds (MMMFs) performed leading up to the 2008 financial crisis and after the implementation of additional regulations in 2010, including the EuroZone crisis which followed a year later.
Authors Dr. David W. Blackwell, Professor of Finance at the University of Kentucky, Dr. Kenneth R. Troske, Professor of Economics at the University of Kentucky, and Dr. Drew B. Winters, Chair in Finance at Texas Tech University, analyzed the changes made to regulations of MMMFs in 2010 and found that:
- MMMFs are now more liquid and better able to handle a significant change in redemptions;
- Dramatically increased transparency and disclosure frequency allows investors to now obtain timely, accurate data on the risk of any fund in which they invest;
- Overall, there is no evidence that the CP market experienced a “freeze” despite substantial redemptions in 2011;
- Funds experienced net-inflows during the Summer of 2011, as both institutional and retail investors sought the liquidity and resilience of MMMFs;
- Based on existing research, there is no evidence that any retail investor was affected by a run on MMMFs;
- The variance in monthly redemptions means a ‘one-size-fits-all’ rule limiting redemptions will be extremely difficult to adopt.