89) The "first mover advantage" is the investor's incentive to make early redemptions from a stable NAV fund (90) when the investor perceives that the redemptions will continue until all liquidity is removed from the fund and the fund will break the buck
, thereby potentially causing the investor to lose money if he redeems his shares.
Note the difference between this case and an intermediary's solvency constraint, where the MMF does not break the buck when it can pay all creditors a minimum gross return of 1, whereas the intermediary has to pay the promised interest to the creditors to be solvent.
The fund does not break the buck at t = 2 if and only if it can pay a return of 1 to all creditors, that is, when [theta]y + [chi]([alpha])(m - [alpha](1 - [mu])) [greater than or equal to] [alpha][mu] + 1 - [alpha], which gives us
The important difference between this proposal and the first proposal, where the creditors that redeem at t = 1 become junior debtholders at t = 2, is that in this case early withdrawals generate an equity cushion so that the region over which the fund does not break the buck widens.