Discussion Paper

Sophisticated and Unsophisticated Runs

Abstract: In March 2020, U.S. prime money market funds (MMFs) suffered heavy outflows following the liquidity shock triggered by the COVID-19 crisis. In a previous post, we characterized the run on the prime MMF industry as a whole and the role of the liquidity facility established by the Federal Reserve (the Money Market Mutual Fund Liquidity Facility) in stemming the run. In this post, based on a recent Staff Report, we contrast the behaviors of retail and institutional investors during the run and explain the different reasons behind the run.

Keywords: COVID-19; sophisticated investors; money market funds (MMFs); MMF;

JEL Classification: G1; G23;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2021-06-02

Number: 20210602