Performance and Persistence in Money Market Fund Returns

We study the factors affecting the cross section of net returns of money market mutual finds from 1990 through 1994, and the persistence of relative returns across years. We find that the expense ratio is the most important factor in explaining differences in net returns. Government-only funds produce slightly lower returns than other-taxable funds, and economies of scale are evident only for the smaller funds. Money funds’ rel- ative returns show strong persistence. Most funds maintain stable expense ratios, so low-cost funds produce consistently high relative returns.