G11 - Portfolio Choice; Investment Decisions

• May 16, 2013

  Modelling the Asset-Allocation and Liability Strategy for Canada’s Foreign Exchange Reserves

  Bank of Canada Review - Spring 2013 Francisco Rivadeneyra, Jianjian Jin, Narayan Bulusu, Lukasz Pomorski

  The Bank of Canada recently developed an asset-liability-matching model to aid in the management of Canada’s foreign exchange reserves. The model allows policy-makers at the Bank and the Department of Finance to analyze asset-allocation and funding-mix decisions by quantifying both the risk-return and liquidity trade-offs for the assets, as well as the risk-cost trade-offs of the funding liabilities.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Debt management, Foreign reserves management JEL Code(s): F, F3, F31, G, G1, G11, G18

• An Equilibrium Analysis of the Rise in House Prices and Mortgage Debt

  Staff Working Paper 2013-9 Shaofeng Xu

  This paper examines the contributions of population aging, mortgage innovation and historically low interest rates to the sharp rise in U.S. house prices and mortgage debt between 1994 and 2005.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Credit and credit aggregates, Economic models JEL Code(s): E, E2, E21, E4, E44, G, G1, G11, R, R2, R21

• The Canadian Debt-Strategy Model: An Overview of the Principal Elements

  Staff Discussion Paper 2011-3 David Bolder, Simon Deeley

  The Canadian Debt Strategy Model helps debt managers determine their optimal financing strategy. The model’s code and documentation are available to the public.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Debt management, Econometric and statistical methods, Financial markets, Fiscal policy JEL Code(s): C, C0, G, G1, G11, G17, H, H6, H63

• The Private Equity Premium Puzzle Revisited

  Staff Working Paper 2011-6 Katya Kartashova

  In this paper, I extend the results of Moskowitz and Vissing-Jørgensen (2002) on the returns to entrepreneurial investments in the United States. First, following the authors’ methodology I replicate the original findings from the Survey of Consumer Finances (SCF) for the period 1989–1998 and show that the returns to private and public equity are similar.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates, Recent economic and financial developments JEL Code(s): G, G1, G11, G12, G2, G24, G3, G31, G32

• Testing Linear Factor Pricing Models with Large Cross-Sections: A Distribution-Free Approach

  Staff Working Paper 2010-36 Sermin Gungor, Richard Luger

  We develop a finite-sample procedure to test the beta-pricing representation of linear factor pricing models that is applicable even if the number of test assets is greater than the length of the time series. Our distribution-free framework leaves open the possibility of unknown forms of non-normalities, heteroskedasticity, time-varying correlations, and even outliers in the asset returns.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): C, C1, C12, C14, C3, C33, G, G1, G11, G12

• Adverse Selection, Liquidity, and Market Breakdown

  Staff Working Paper 2010-32 Koralai Kirabaeva

  This paper studies the interaction between adverse selection, liquidity risk and beliefs about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if it is accompanied by a flight-to-liquidity, a misassessment of systemic risk, or uncertainty about asset values.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Financial stability JEL Code(s): D, D8, D82, G, G0, G01, G1, G11

• Liquidity, Risk, and Return: Specifying an Objective Function for the Management of Foreign Reserves

  Staff Discussion Paper 2010-13 Yuliya Romanyuk

  An objective function is a key component of a strategic portfolio management model used to determine the optimal allocations of assets and, possibly, their associated liabilities over some investment horizon.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Foreign reserves management JEL Code(s): G, G1, G11

• Asset-Liability Management: An Overview

  Staff Discussion Paper 2010-10 Yuliya Romanyuk

  Relevant literature on asset-liability management (ALM) is reviewed and different ALM approaches are discussed that may be of interest to the Bank of Canada for the purpose of modelling the Exchange Fund Account (EFA).

  Content Type(s): Staff research, Staff discussion papers Topic(s): Foreign reserves management JEL Code(s): G, G1, G11

• International Capital Flows and Bond Risk Premia

  Staff Working Paper 2010-14 Jesus Sierra

  This paper studies the impact of international capital flows on asset prices through risk premia. We investigate whether foreign purchases of U.S. Treasury securities significantly contributed to the decline in excess returns on long-term bonds between 1995 and 2008.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): C, C2, C22, F, F3, F31, F32, F34, G, G1, G11, G12, G15

• Idiosyncratic Coskewness and Equity Return Anomalies

  Staff Working Paper 2010-11 Fousseni Chabi-Yo, Jun Yang

  In this paper, we show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on the idiosyncratic coskewness beta, which measures the co-movement of the individual stock variance and the market return.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets JEL Code(s): G, G1, G11, G12, G14, G3, G33