We study investor redemptions and portfolio rebalancing decisions of prime money market mutual funds (MMFs) during the Eurozone crisis. We find evidence that investors selectively acquire and act upon information about MMFs' risk exposures. In turn, this provides strong incentives for managers to withdraw funding from issuers whose debt becomes information-sensitive. Consistent with this, we show that MMF managers, particularly those serving the most sophisticated investors, selectively adjust their portfolio risk exposures to avoid information-sensitive European risks, while maintaining or increasing risk exposures to other regions. This mechanism helps to explain the occurrence of selective dry-ups in debt markets where delegation is common and returns to information production are often low.
