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Search and selection in the money market fund industry
Author(s) -
Makadok Richard,
Walker Gordon
Publication year - 2007
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.4250171005
Subject(s) - economics , outcome (game theory) , selection (genetic algorithm) , microeconomics , monetary economics , econometrics , financial economics , computer science , artificial intelligence
This paper develops a dynamic, stochastic growth system for money market fund families and tests how search behavior within this system affects fund family exit. The outcome of search behavior is measured as the time‐varying parameters of the growth system, estimated by the Kalman filter. The results provide no evidence that the continuously updated coefficients influence the risk of failure. However, the cumulative amount of search generally affects exit positively, consistent with Hannan and Freeman's (1984) structural inertia theory. Founding conditions and money market fund performance are also important predictors of money market fund failure. These findings are discussed in the light of Bowman's (1963) theory of managerial coefficients and its applicability to simple industries like money market funds. The implications for future empirical studies on evolutionary growth systems are also discussed.