Valuation discrepancies in money market funds during market disruptions: evidence from Egypt

Abstract

Money market funds (MMFs) are generally considered safe investment vehicles, but the 2008 global financial crisis showed their vulnerability during market disruptions resulting in increased regulatory oversight across developed markets to protect investors. This paper examines the effect of MMF accounting regulation on investors in an emerging market context. It hypothesizes that the continued use of amortized cost methods to account for MMFs’ Net Asset Value (NAV) during market disruptions can result in unfair treatment of investors. The Egyptian money market provided a unique laboratory to test this hypothesis over a prominent economic crisis that combined high levels of interest rate volatility with a redemption-only structure for MMFs. A model that measures the discrepancies between the amortized and floating market NAVs per certificate for various money market portfolios (MMPs) simulating MMFs of different durations is tested using the Egyptian data. A sharp rise in interest rates is found to lead to significant discrepancies between the amortized NAV per certificate relative to their floating value. Serial investor redemptions of the certificates compound the discrepancies, but only certificate holders remaining in the funds bear the accumulated losses, which are augmented for portfolios with higher durations. The results suggest that emerging market regulators consider introducing the rules that switch to floating NAV calculations for MMFs during such periods to promote equality across all investors.

Revolusi Akuntan 4.0

“…Di du nia industri, penggunaan internet juga se cara masif diterapkan pada proses integrasi sistem industri, sehingga seluruh perangkat saat ini tersambung dalam sebuah jaringan bersama yang tidak terbatas pada ruang dan waktu. Perangkat komputer juga tidak lagi membutuhkan ruang yang besar, bah kan ditemukannya smartphone menjadi salah satu tonggak revolusi teknologi 4.0 yang menjadikan setiap orang setiap saat terhubung dengan dunia luar (Kordy et al, 2020;Shapiro, 2020). Saat ini seluruh orang tersambung dalam satu jaringan raksasa yang sama.…”

How Does Strengthening Islamic Banking Competitiveness? Indonesia Evidence

“…There is intense competition, making banks know what, when, and where to provide products and services, primarily Islamic services (Elfeituri and Vergos 2019;Glosten and Rauterberg 2019;Thongpanya 2018). It is still rare for Islamic banks to try to capture the floating market or a market that is not too passionate about a banking system, conventional or Shariah (Tobing, Fathorazzi, and Wulandari 2016;Kordy, Bassiouny, and Tooma 2020).…”

“…It is still rare for Islamic banks to try to capture the floating market or a market that is not too passionate about a banking system, conventional or Shariah (Kordy, Bassiouny, and Tooma 2020). This market can move around depending on which method is most profitable.…”