Sophisticated and Unsophisticated Runs - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

Sophisticated and Unsophisticated Runs

Number 956
December 2020 Revised April 2024

JEL classification: E41, G23, G28

Authors: Marco Cipriani and Gabriele La Spada

What makes investors run? We show that during the March 2020 run on prime money market funds, institutional and retail investors behaved in dramatically different ways: sophisticated institutional investors ran preemptively based on fundamentals; unsophisticated retail investors ran based on herd-like informational spillovers, leaving funds belonging to families with large institutional outflows. We show that based on website traffic, institutional investors acquired more information on fund portfolios; furthermore, we show that within-family institutional outflows were informative to retail investors. Both investor types ran more if switching to a safer investment was cheaper, suggesting that safe-haven availability exacerbates runs.

Available only in PDF

Author Disclosure Statement(s)

Marco Cipriani
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Gabriele La Spada
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper.

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