The first chapter of this dissertation looks at strategic complementarities among investors inpooled investment vehicles where fund managers and investors have different objectives. Could lessening strategic complementarities among the investors of a fund make investing in the fund less appealing? Exploiting the 2014 Reform of the money market mutual fund industry as a quasi-natural experiment, I empirically show that abandoning the stable net asset value pricing for the floating pricing led agents to withdraw their investments from the treated funds. The explanation proposed does not rely on the non-monetary benefits of stable pricing funds: the prospect of fewer redemption requests in times of market stress makes fund managers tilt the portfolio towards riskier assets, as shown both theoretically and empirically. Fund managers maximize total fees, rather than investors’ utility. Last, I provide suggestive evidence that the sponsor’s ex-post support explains the heterogeneous treatment effect across money market funds. In the second chapter, my coauthor and I study the effects of balancesheet policies adopted by the Central Bank on the production of safe asset substitutes by financial intermediaries. Due to the presence of a pecuniary externality, intermediaries’ production of safe asset substitutes (shadow money) is socially excessive. The balance sheet of the Central Bank governs the relative supply of public safe assets available to the investors: reserves and government bonds. The composition of the pool of public safe assets, in turn, affects final investors’ demand for shadow money through a relative scarcity channel - that is, the Central Bank can always impact equilibrium shadow money production. When optimally setting the size of its balance sheet acting as a macroprudential regulator, the Central Bank trades off the benefits of crowding out shadow money with the costs of distorting the efficient portfolio choice of investors. The scope of the Central Bank intervention depends on the strength of the relative scarcity channel, which is pinned down by the substitutability between different safe assets. In particular, when government bonds are a closer substitute to shadow money than bank deposits are - e.g., when households hold part of their safe assets via relatively more price-sensitive asset managers - the Central Bank can implement the constrained efficient allocation via a smaller balance sheet.

Creator

• troiano, adriana

DOI

• https://doi.org/10.21985/n2-mkxx-8p81

Subject

• Economics
• Finance

Language

• en

Alternate Identifier

• http://dissertations.umi.com/northwestern:15925
• etdadmin_upload_879002

Date created

• 2022-01-01

Resource type

• Dissertation

Rights statement

• In Copyright