I use a unique institutional feature of money market funds to identify whether funds hold additional liquidity to guard against and prevent potential investor runs. Specifically, some funds are used as a cash management vehicle for related entities, such as other funds in the fund family. These “internal” funds should experience less outflows during market stress, and should thus have less need to hold this additional liquidity. Indeed, these “internal” prime money market funds do hold lower liquidity than other prime funds. This effect is most pronounced at quarter ends, when there is an exogenous reduction in cash demand from non-US bank dealers.

Recent reform proposals call for an elimination of the constant net asset value (NAV) or “buck” in money market mutual funds to reduce the occurrence of runs. Outside the United States, there are several countries that have money market mutual funds with and without constant NAVs. Using daily data on individual fund flows from these countries, this paper evaluates whether the reliance on a constant NAV is associated with higher fund redemptions. The data suggest that funds with a constant NAV experienced more negative net flows during the period of the run on the Reserve Primary Fund, even after controlling for measures of fund risk and risk aversion. However, I do not find convincing support for the hypothesis that the effect of sponsor strength on fund flows was stronger for constant NAV money market funds.