Prime Time for Prime Funds: Floating NAV, Intraday Redemptions and Liquidity Risk During Crises
69 Pages Posted: 12 Aug 2020 Last revised: 13 May 2021
Date Written: August 11, 2020
We present novel evidence on the effectiveness of floating net asset values (NAVs) in mitigating the investor run-like behavior during crises, including (1) the COVID-19 shock of March 2020, and (2) the near-default of U.S. debt during the debt ceiling crisis of December 2017. Our analysis offers a first look at a recent industry innovation, namely, funds offering intraday share redemptions. Consistent with a theoretical model, we find that funds offering multiple intraday NAVs and redemptions (multiple strikes) experience significantly larger outflows during periods of stress, compared to funds offering end-of-day NAV and share redemptions (single-strike funds).
Keywords: Prime Money Market Funds, Intraday Redemptions, Floating NAV, Liquidity Risk, Covid-19, Debt Ceiling Crisis
JEL Classification: G01, G18, G23, G28
Suggested Citation: Suggested Citation