We study institutional cash management by constructing a novel dataset that records the specific money market funds MMFs held by each mutual fund in each month from 2010 to 2024.
We study institutional cash management by constructing a novel dataset that records the specific money market funds (MMFs) held by each mutual fund in each month from 2010 to 2024. We document remarkably high inertia: more than half of mutual funds never switched their MMF choice throughout the sample period, despite non-negligible yield dispersion. To decompose the sources of this inertia, we develop a two-stage structural model that separately identifies the determinants of portfolio managers’ attentiveness (“waking up”) and their conditional preferences once attentive. We estimate the model using a methodology that combines BLP-style contraction mapping with maximum likelihood. We establish three main findings. First, MMFs with less attentive investor bases engage in greater liquidity transformation while offering lower yields. As a result, they earn higher profits and exhibit significantly higher survival rates, especially during periods of low interest rates. Second, we find that aggregate flows appear more yield-sensitive during low interest rate periods (the well-documented “reaching for yield” phenomenon) not because individual investors become more yield-seeking, but because a larger fraction of investors becomes attentive—a composition effect rather than a preference shift. Third, counterfactual analysis reveals a potential tension between market efficiency and financial stability if AI-driven automation reduces investor inattention. In the absence of inattention, fees fall by approximately half, yield dispersion collapses to near zero, and market concentration declines by roughly 20%, but monthly fund flows increase by about three times and the incidence of fund-months in which redemptions exceed a fund’s weekly liquid assets rises by about six times, raising the risk of fire sales and MMF runs. We appreciate helpful comments from Eduard Boehm (discussant), Andrew Ching, Jose Moraga, Stefan Nagel, Pascal Noel, and participants at the 14th Consumer Search and Switching Costs Workshop and the University of Chicago. This paper was previously circulated with the title “Are Institutional Investors Sleeping on Yield? An Analysis of Inertia in Money Market Fund Choices.” We thank S&P Global Market Intelligence team for their help in extracting insurance companies’ NAIC financial filings data. Seyedmohsen Alavi, Daniel Chang, and Yiming Ma provided excellent research assistance. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Ali Hortaçsu has done consulting work in the retail industry, without relation to this research project. In addition toworking papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—theNBER Reporter, theNBER Digest, theBulletin on Health, theBulletin on the Economics of Alzheimer's, and theBulletin on Entrepreneurship—as well asresearch spotlights, lectures, and panel videos.