Financial markets

• December 18, 2006

  A Summary of the Bank of Canada Conference on Fixed-Income Markets, 3–4 May 2006

  Bank of Canada Review - Winter 2006-2007 Gregory Bauer, Scott Hendry

  The Bank of Canada's interest in fixed-income markets spans several of its functional areas of responsibility, including monetary policy, funds management, and financial system stability and efficiency. For that reason, the 2006 conference brought together top academics and central bankers from around the world to discuss leading-edge work in the field of fixed-income research. The papers and discussions cover such topics as the efficiency of fixed-income markets, price formation, the determinants of the yield curve, and volatility modelling. This article provides a short summary of each conference paper and the ensuing discussion.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Debt management, Financial markets, Interest rates

• Modelling Term-Structure Dynamics for Risk Management: A Practitioner's Perspective

  Staff Working Paper 2006-48 David Bolder

  Modelling term-structure dynamics is an important component in measuring and managing the exposure of portfolios to adverse movements in interest rates.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets, Interest rates JEL Code(s): C, C0, C6, E, E4, G, G1

• The Long-Term Effects of Cross-Listing, Investor Recognition, and Ownership Structure on Valuation

  Staff Working Paper 2006-44 Michael R. King, Dan Segal

  The authors show that the widening of a foreign firm's U.S. investor base and the improved information environment associated with cross-listing on a U.S. exchange each have a separately identifiable effect on a firm's valuation.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, International topics JEL Code(s): G, G1, G12, G15

• Efficient Hedging and Pricing of Equity-Linked Life Insurance Contracts on Several Risky Assets

  Staff Working Paper 2006-43 Alexander Melnikov, Yuliya Romanyuk

  The authors use the efficient hedging methodology for optimal pricing and hedging of equity-linked life insurance contracts whose payoff depends on the performance of several risky assets.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): D, D8, D81, G, G1, G10, G12

• Linking Real Activity and Financial Markets: The Bonds, Equity, and Money (BEAM) Model

  Staff Working Paper 2006-42 Céline Gauthier, Fuchun Li

  The authors estimate a small monthly macroeconometric model (BEAM, for bonds, equity, and money) of the Canadian economy built around three cointegrating relationships linking financial and real variables over the 1975–2002 period.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial stability JEL Code(s): C, C5, E, E4

• Conditioning Information and Variance Bounds on Pricing Kernels with Higher-Order Moments: Theory and Evidence

  Staff Working Paper 2006-38 Fousseni Chabi-Yo

  The author develops a strategy for utilizing higher moments and conditioning information efficiently, and hence improves on the variance bounds computed by Hansen and Jagannathan (1991, the HJ bound) and Gallant, Hansen, and Tauchen (1990, the GHT bound).

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): C, C6, C61, G, G1, G12, G13
• October 3, 2006

  A New Effective Exchange Rate Index for the Canadian Dollar

  Bank of Canada Review - Autumn 2006 Janone Ong

  An effective exchange rate is a measure of the value of a country's currency vis-à-vis the currencies of its most important trading partners. The Bank of Canada has created a new Canadian-dollar effective exchange rate index (CERI) to replace the C-6 index that it currently uses. The CERI uses multilateral trade weights published by the International Monetary Fund and includes the six currencies of countries or economic zones with the largest share of Canada's international trade. As such, it better reflects the recent changes in Canada's trade profile, including the rise in the importance of China and Mexico and the relative decline in importance of Europe and Japan in Canada's international trade. The author describes the methodology and construction of the new index and reviews the advantages it offers over the C-6, particularly the use of multilateral trade weights, the inclusion of trade in services, and the use of more recent trade data.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rates, Financial markets, Monetary and financial indicators

• Estimation of the Default Risk of Publicly Traded Canadian Companies

  Staff Working Paper 2006-28 Georges Dionne, Sadok Laajimi, Sofiane Mejri, Madalina Petrescu

  Two models of default risk are prominent in the financial literature: Merton's structural model and Altman's non-structural model.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Debt management, Econometric and statistical methods, Financial markets, Recent economic and financial developments JEL Code(s): G, G2, G21, G24, G28, G3, G33

• Benchmark Index of Risk Appetite

  Staff Working Paper 2006-16 Miroslav Misina

  Changes in investors' risk appetite have been used to explain a variety of phenomena in asset markets.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets JEL Code(s): G, G1, G12
• April 12, 2006

  The Evolution of the Government of Canada's Debt Distribution Framework

  Bank of Canada Review - Spring 2006 Marc Pellerin

  This overview includes a brief history highlighting the government's use of the primary and secondary markets to develop a framework for distributing its debt securities to financial market intermediaries and end investors. The framework is also intended to meet the government's debt-strategy objectives of raising stable, low-cost funding and maintaining a well-functioning debt market. Pellerin reviews the government's adoption of a new framework in 1998 as well as the 2005 modifications aimed at attracting continued broad and competitive participation in government auctions.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Debt management, Financial markets