Wharton Pension Research Council Working Papers

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Working Paper

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Despite a vast theoretical literature on contagious behavior of investors, little is known about its empirical evidence in a real financial crisis setting. This paper examines evidence for contagious runs in money market funds during the 2008 financial crisis, drawing on a rich data set tracking U.S. money market funds’ daily flows and their enrollment statuses in the Treasury Department’s Temporary Guarantee Program (TGP). Evaluating the positive externality effect from a peer fund’s enrollment in the TGP on non-enrolled funds, we show that panic-driven runs were contagious across funds. We find that funds’ stability due to their enrollment in the guarantee program spilled over and enhanced daily flows to a non-enrolled fund by $1.8 million compared to already-enrolled funds. Moreover, we find that retail investors were less likely than institutional investors to return to prime money market funds even after enrollment in the guarantee program, implying that the latter benefited more from the government back-stop. Results are germane to policies seeking to rebuild investor confidence in times of financial crises and reduce the chance of future contagion in this industry.

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All opinions, errors, findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2013 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


I thank Franklin Allen, Santosh Anagol, Peter Blair, Peter Crane, Alex Edmans, Fernando Ferreira, Itay Goldstein, Todd Gormley, Daniel Gottlieb, Kumar Kesavan, Raimond Maurer, Olivia S. Mitchell, David Musto, Thien Nguyen, Greg Nini, Nick Roussanov, Paula Tkac, Jeremy Tobacman, Petra Todd, and seminar participants at George Mason University, Nanyang Business School, SKK Graduate School of Business, Temple University, University of Cincinnati, University of New South Wales, University of Illinois at Chicago, the Wharton School and the 2012 FMA Doctoral Student Consortium for helpful discussions and comments. I gratefully acknowledge research support from the Bradley Foundation, the Pension Research Council/Boettner Center, and the S.S. Huebner Foundation at the Wharton School of the University of Pennsylvania. All errors are my own. © 2013 Kim.

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Date Posted: 26 June 2019