G1 - General Financial Markets

• Did Canadian Corporate Bond Funds Increase their Exposures to Risks?

  Staff Analytical Note 2018-7 Rohan Arora, Nadeem Merali, Guillaume Ouellet Leblanc

  Canadian corporate bond mutual funds have rapidly increased in number and size in recent years. Their holdings have also become riskier, increasing their exposures to credit risk, interest rate risk and liquidity risk. We also briefly discuss financial stability implications.

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

• Asymmetric Risks to the Economic Outlook Arising from Financial System Vulnerabilities

  Staff Analytical Note 2018-6 Thibaut Duprey

  When financial system vulnerabilities are elevated, they can give rise to asymmetric risks to the economic outlook. To illustrate this, I consider the economic outlook presented in the Bank of Canada’s October 2017 Monetary Policy Report in the context of two key financial system vulnerabilities: high levels of household indebtedness and housing market imbalances.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Financial stability, Financial system regulation and policies, Monetary and financial indicators, Monetary policy and uncertainty, Recent economic and financial developments JEL Code(s): C, C0, C01, C1, C11, C15, E, E1, E17, E3, E32, E37, E4, E44, E47, E5, E58, E6, E66, G, G0, G01, G1, G18

• Is the Excess Bond Premium a Leading Indicator of Canadian Economic Activity?

  Staff Analytical Note 2018-4 Maxime Leboeuf, Daniel Hyun

  This note investigates whether Canadian corporate spreads and the excess bond premium (EBP) lead Canadian economic activity. Indeed, we find that corporate spreads precede changes in real gross domestic product (GDP) in Canada over the subsequent year. The EBP accounts for most of this property. Further, an unanticipated increase in the Canadian EBP forecasts a deterioration of domestic macroeconomic conditions: a 10-basis-point increase results in a fall in both GDP and consumer price index (CPI) of 0.4 per cent and 0.1 per cent, respectively, over three years.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Business fluctuations and cycles, Financial markets JEL Code(s): E, E3, E32, E4, E44, G, G1, G12

• The “Too Big to Fail” Subsidy in Canada: Some Estimates

  Staff Working Paper 2018-9 Patricia Palhau Mora

  Implicit government guarantees of banking-sector liabilities reduce market discipline by private sector stakeholders and temper the risk sensitivity of funding costs. This potentially increases the likelihood of bailouts from taxpayers, especially in the absence of effective resolution frameworks.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial stability JEL Code(s): G, G1, G13, G2, G21, G28

• High-Frequency Trading and Institutional Trading Costs

  Staff Working Paper 2018-8 Marie Chen, Corey Garriott

  Using data on Canadian bond futures, we examine how high-frequency traders (HFTs) interact with institutions building large positions. In contrast to recent findings, we find HFTs in the data act as small-sized liquidity suppliers, and we reject the hypothesis that they engage in back running, a predatory trading strategy.

  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

• Adverse Selection with Heterogeneously Informed Agents

  Staff Working Paper 2018-7 Mohammad Davoodalhosseini

  A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high quality assets. Heterogeneous sellers with private information choose what type of buyers they want to trade with.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets, Financial stability, Financial system regulation and policies, Market structure and pricing JEL Code(s): D, D4, D40, D8, D82, D83, G, G0, G01, G1, G10, G2, G20

• The Government of Canada Debt Securities Data Set

  Technical Report No. 112 Jeffrey Gao, Francisco Rivadeneyra, Gabriel Rodriguez Rondon

  We present the daily time series of the outstanding amounts of all Government of Canada marketable debt securities from July 2001 to June 2017.

  Content Type(s): Staff research, Technical reports Topic(s): Debt management, Econometric and statistical methods, Financial markets JEL Code(s): C, C8, C80, G, G1, G10, H, H6, H63

• Government of Canada Securities in the Cash, Repo and Securities Lending Markets

  Staff Discussion Paper 2018-4 Narayan Bulusu, Sermin Gungor

  This paper documents the properties of Government of Canada securities in cash, repo and securities lending transactions over their life cycle. By tracking every security from issuance to maturity, we are able to highlight inter-linkages between the markets for cash and for specific securities.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial markets, Wholesale funding JEL Code(s): G, G1, G12, G2, G21, G23

• Speed Segmentation on Exchanges: Competition for Slow Flow

  Staff Working Paper 2018-3 Lisa Anderson, Emad Andrews, Baiju Devani, Michael Mueller, Adrian Walton

  In 2015, TSX Alpha, a Canadian stock exchange, implemented a speed bump for marketable orders and an inverted fee structure as part of a redesign. We find no evidence that this redesign impacted market-wide measures of trading costs or contributed appreciably to segmenting retail order flow away from other Canadian venues with a maker-taker fee structure.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G14, G2, G24

• Variance Premium, Downside Risk and Expected Stock Returns

  Staff Working Paper 2017-58 Bruno Feunou, Ricardo Lopez Aliouchkin, Roméo Tedongap, Lai Xi

  We decompose total variance into its bad and good components and measure the premia associated with their fluctuations using stock and option data from a large cross-section of firms.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets JEL Code(s): G, G1, G12