Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry
|Speaker:||Mariassunta Giannetti, Stolkholm School of Economics|
|Date:||Friday 16 February 2018|
|Location:||Kolade teaching room, Building: one|
We exploit a change in regulation in the money market mutual fund industry to investigate how the structure of liabilities impacts financial intermediaries’ asset holdings. We show that following the change in regulation, which made money market funds’ liabilities more information-sensitive, less risky funds exited the industry. The remaining funds increased the riskiness of their portfolios, possibly in response to an increase in the sensitivity of flows to performance. To the best of our knowledge, our paper provides the first causal evidence in support of theories highlighting that the characteristics of financial intermediaries’ assets and liabilities are jointly determined.