Responding to the Bear Market: Money Market Funds

Matthew P. Fink

in The Rise of Mutual Funds

Second edition

Published in print January 2011 | ISBN: 9780199753505
Published online January 2012 | e-ISBN: 9780199918805 | DOI:
Responding to the Bear Market: Money Market Funds

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This chapter discusses the impact of the 1970s bear market on the mutual fund industry. Just as three decades of a strong stock market, from 1940 to 1970, spurred mutual fund growth, the prolonged bear market of the 1970s devastated mutual funds. Fund assets plummeted due to falling portfolio values and net redemptions of fund shares. The 1970s were also a terrible time for consumers, who paid high interest rates on their borrowings but were limited by federal law to receiving low interest rates on their savings. The mutual fund industry turned lemons into lemonade by sponsoring money market funds, which earned high short-term rates that were passed on to shareholders. Money market funds enjoyed spectacular success and revolutionized the fund industry and the entire American financial system.

Keywords: mutual fund industry; mutual funds; bear market; interest rates; money market funds

Chapter.  5781 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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