Do shadow prices provide early warning of severe financial shocks?
No. For example, in the week ending September 10, 2008—two business days before the failure of Lehman Brothers Holdings Inc.—90 percent of prime money market funds in the sample had per-share market values within 5 basis points of $1.0000 (between $0.9996 and $1.0005). Even the following week, after Lehman Brothers had failed, 93 percent of prime funds in the sample had shadow prices greater than $0.9975, and none had a per-share market value within 10 basis points of $0.9950.
