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Interest-rate and calendar-time effects in money market fund and bank deposit cash flows |
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| Authors: | Vladimir Kotomin Stanley D Smith Drew B Winters |
| Institution: | 1. Department of Finance, Insurance & Law, College of Business, Illinois State University, Campus Box 5480, Normal, IL, 61790-5480, USA 2. Department of Finance, College of Business Administration, University of Central Florida, Orlando, FL, 32816-1400, USA 3. Department of Finance, Rawls College of Business, Texas Tech University, Box 42101, Lubbock, TX, 79409-2101, USA |
| Abstract: | We examine the sensitivities of aggregate balances of retail and institutional money market funds (MMFs) and their potential substitutes, bank deposits, to changes in short-term interest rates while controlling for calendar-time effects. We find that institutional MMF and time deposit cash flows are sensitive to recent changes in short-term interest rates. Institutional MMF investors appear to take advantage of arbitrage opportunities created by MMFs using the amortized cost technique. Retail MMF investors are much less responsive to changes in interest rates. |
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