Sturm und Drang in Money Market Funds:When Money Market Funds Cease to BeNarrow

This paper investigates the returns and °ows of German money marketfunds before and during the liquidity crisis of 2007/2008. The main¯ndings of this paper are: in liquid times, money market funds en-hanced their returns by investing in less liquid papers. By doing sothey outperformed other funds as long as liquidity in the market washigh. Investing in less liquid assets, however, widens the narrow struc-ture of money market funds and makes them vulnerable to runs. Duringthe shortening of liquidity caused by the subprime crisis, illiquid fundsexperienced runs, while more liquid funds functioned as a safe haven.