Sophisticated and unsophisticated runs

This paper characterizes the run behavior of sophisticated (institutional) and unsophisticated (retail) investors by studying the runs on prime money market funds (MMFs) of March 2020, at the beginning of the COVID-19 pandemic. For both U.S. and European institutional prime MMFs, the runs were more severe in funds for which the imposition of redemption gates and fees was a material possibility because of their lower liquidity positions. In contrast, although U.S. retail prime MMFs are also required to adopt the same system of gates and fees, their outflows did not depend on fund liquidity; unsophisticated (retail) investors ran more often if their funds belonged to a family offering institutional prime MMFs and suffering larger institutional redemptions. Finally, across investor types, MMFs belonging to families with a larger offering of government MMFs experienced larger outflows; this result is consistent with lower switching costs in fund families that are more specialized in government funds.