G14 - Information and Market Efficiency; Event Studies

• Do Liquidity Proxies Measure Liquidity in Canadian Bond Markets?

  Staff Analytical Note 2017-23 Jean-Sébastien Fontaine, Jeffrey Gao, Jabir Sandhu, Kobe Wu

  This analytical note evaluates the reliability of proxies for measuring liquidity in Canadian bond markets. We find that price-impact and bid-ask proxies paint a similar picture of evolving liquidity conditions to that obtained from richer measures of liquidity for benchmark Government of Canada bonds.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Debt management, Financial markets JEL Code(s): G, G1, G12, G14, G2, G23, G3, G32

• Do Canadian Broker-Dealers Act as Agents or Principals in Bond Trading?

  Staff Analytical Note 2017-11 Daniel Hyun, Jesse Johal, Corey Garriott

  Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades).

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Market structure and pricing, Recent economic and financial developments JEL Code(s): G, G1, G14, G2, G20, L, L1

• Has Liquidity in Canadian Government Bond Markets Deteriorated?

  Staff Analytical Note 2017-10 Sermin Gungor, Jun Yang

  This note presents measures of liquidity used by the Bank of Canada to monitor market conditions and discusses recent trends in Government of Canada (GoC) fixed-income market liquidity. Our results indicate that the Bank’s measures have improved since the financial crisis. Furthermore, GoC market liquidity deteriorated following several stressful events: the euro crisis in 2011, the taper tantrum in 2013 and the oil price shock in 2015. In all three cases, the deterioration remained within historical norms and liquidity returned to normal levels afterwards.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14

• What Explains Month-End Funding Pressure in Canada?

  Staff Discussion Paper 2017-9 Christopher S. Sutherland

  The Canadian overnight repo market persistently shows signs of latent funding pressure around month-end periods. Both the overnight repo rate and Bank of Canada liquidity provision tend to rise in these windows. This paper proposes three non-mutually exclusive hypotheses to explain this phenomenon.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial markets, Interest rates, Monetary policy framework, Monetary policy implementation, Monetary policy transmission JEL Code(s): E, E4, E41, E43, E5, E52, E58, F, F3, F36, G, G1, G14, G15, G2, G21

• Small‐Sample Tests for Stock Return Predictability with Possibly Non‐Stationary Regressors and GARCH‐Type Effects

  Staff Working Paper 2017-10 Sermin Gungor, Richard Luger

  We develop a simulation-based procedure to test for stock return predictability with multiple regressors. The process governing the regressors is left completely free and the test procedure remains valid in small samples even in the presence of non-normalities and GARCH-type effects in the stock returns.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Financial markets JEL Code(s): C, C1, C12, C3, C32, G, G1, G14

• Banking Regulation and Market Making

  Staff Working Paper 2017-7 David Cimon, Corey Garriott

  We model how securities dealers respond to regulations on leverage, position and liquidity such as those imposed by the Basel III framework. We show that while asset prices exhibit greater price impact, bid-ask spreads do not change and trading volumes may even increase.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10