FSRC - Financial System Research Center

• How do Canadian Corporate Bond Mutual Funds Meet Investor Redemptions?

  Staff Analytical Note 2018-14 Guillaume Ouellet Leblanc, Rohan Arora

  When investors redeem their fund shares for cash, fixed-income fund managers can choose whether to draw on their liquid holdings or sell bonds in the secondary market. We analyze the liquidity-management decisions of Canadian corporate bond mutual funds, focusing on the strategies they use to meet investor redemptions.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• Uncovered Return Parity: Equity Returns and Currency Returns

  Staff Working Paper 2018-22 Edouard Djeutem, Geoffrey R. Dunbar

  We propose an uncovered expected returns parity (URP) condition for the bilateral spot exchange rate. URP implies that unilateral exchange rate equations are misspecified and that equity returns also affect exchange rates. Fama regressions provide evidence that URP is statistically preferred to uncovered interest rate parity (UIP) for nominal bilateral exchange rates between the US dollar and six countries (Australia, Canada, Japan, Norway, Switzerland and the UK) at the monthly frequency.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Exchange rates, International financial markets JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G15

• Analysis of Asymmetric GARCH Volatility Models with Applications to Margin Measurement

  Staff Working Paper 2018-21 Elena Goldman, Xiangjin Shen

  We explore properties of asymmetric generalized autoregressive conditional heteroscedasticity (GARCH) models in the threshold GARCH (GTARCH) family and propose a more general Spline-GTARCH model, which captures high-frequency return volatility, low-frequency macroeconomic volatility as well as an asymmetric response to past negative news in both autoregressive conditional heteroscedasticity (ARCH) and GARCH terms.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Payment clearing and settlement systems JEL Code(s): C, C5, C58, G, G1, G19, G2, G23, G28

• The (Un)Demand for Money in Canada

  Staff Working Paper 2018-20 Casey Jones, Geoffrey R. Dunbar

  A novel dataset from the Bank of Canada is used to estimate the deposit functions for banknotes in Canada for three denominations: $1,000, $100 and $50. The broad flavour of the empirical findings is that denominations are different monies, and the structural estimates identify the underlying sources of the non-neutrality.

  Content Type(s): Staff research, Staff working papers Topic(s): Bank notes, Econometric and statistical methods JEL Code(s): C, C3, C31, C36, E, E4, E41

• The Share of Systematic Variations in the Canadian Dollar—Part III

  Staff Analytical Note 2018-13 Guillaume Nolin, James Kyeong, Jean-Sébastien Fontaine

  We draw a parallel between the dramatic increases of systematic variations in exchange rates and international bank lending. We find that when a country’s currency has a larger share of systematic variations, lending flows by international banks to that country become more sensitive to global lending - they also become more systematic. This parallel is particularly prevalent for large commodity exporters, including Canada. Global financial intermediation may open a new channel between the real economy and exchange rates.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Exchange rates JEL Code(s): F, F3, F31

• Customer Liquidity Provision in Canadian Bond Markets

  Staff Analytical Note 2018-12 Corey Garriott, Jesse Johal

  This analytical note assesses the prevalence of liquidity provision by institutional investors in Canadian bonds. We find that the practice is not prevalent in Canada. Customer liquidity provision is more prevalent for less liquid bonds, on days when liquidity is already expensive or when there are larger trading volumes. In our interpretation, Canadian dealers draw on customer liquidity as a supplementary source of liquidity and only when necessary, given its cost.

  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

• Housing Price Network Effects from Public Transit Investment: Evidence from Vancouver

  Staff Working Paper 2018-18 Alex Chernoff, Andrea Craig

  In this paper, we estimate the effect on housing prices of the expansion of the Vancouver SkyTrain rapid transit network during the period 2001–11. We extend the canonical residential sorting equilibrium framework to include commuting time in the household utility function.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Economic models, Housing JEL Code(s): H, H4, H41, R, R2, R21, R4, R41