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

See all articles by Lorenzo Casavecchia

Lorenzo Casavecchia

University of Technology Sydney

Georgina Ge

Macquarie University - Department of Applied Finance and Actuarial Studies

C. Wei Li

University of Iowa

Ashish Tiwari

University of Iowa

Date Written: August 11, 2020

Abstract

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

Casavecchia, Lorenzo and Ge, Chanyuan and Li, C. Wei and Tiwari, Ashish, Prime Time for Prime Funds: Floating NAV, Intraday Redemptions and Liquidity Risk During Crises (August 11, 2020). Available at SSRN: https://ssrn.com/abstract=3671972 or http://dx.doi.org/10.2139/ssrn.3671972

Lorenzo Casavecchia

University of Technology Sydney ( email )

8 Ultimo Rd
Sydney, NSW 2007
Australia

Chanyuan Ge

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
United States

C. Wei Li

University of Iowa ( email )

Finance Department
Henry B. Tippie College of Business
Iowa City, IA 52242-1097
United States
319-335-0911 (Phone)
3193353690 (Fax)

Ashish Tiwari (Contact Author)

University of Iowa ( email )

Finance Department
Henry B. Tippie College of Business, 108 PBB
Iowa City, IA 52242
United States
(319) 353-2185 (Phone)
(319) 335-3690 (Fax)

HOME PAGE: https://tippie.uiowa.edu/people/ashish-tiwari

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