G1 - General Financial Markets

• What Does the Risk-Appetite Index Measure?

  Staff Working Paper 2003-23 Miroslav Misina

  Explanations of changes in asset prices as being due to exogenous changes in risk appetite, although arguably controversial, have been popular in the financial community and have also received some attention in attempts to account for recent financial crises. Operational versions of these explanations are based on the assumption that changes in asset prices can be decomposed into a part that can be attributed to changes in riskiness and a part attributable to changes in risk aversion, and that some quantitative measure can capture these effects in isolation.

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

• The U.S. Stock Market and Fundamentals: A Historical Decomposition

  Staff Working Paper 2003-20 David Dupuis, David Tessier

  The authors identify the fundamentals behind the dynamics of the U.S. stock market over the past 30 years. They specify a structural vector-error-correction model following the methodology of King, Plosser, Stock, and Watson (1991).

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

• The Syndicated Loan Market: Developments in the North American Context

  Staff Working Paper 2003-15 Jim Armstrong

  The author describes the rapid development of the syndicated corporate loan market in the 1990s. He explores the historical forces that led to the development of the contemporary U.S. syndicated loan market, which is effectively a hybrid of the investment banking and commercial banking worlds.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets JEL Code(s): G, G1, G10, G2, G21

• An Index of Financial Stress for Canada

  Staff Working Paper 2003-14 Mark Illing, Ying Liu

  The authors develop an index of financial stress for the Canadian financial system. Stress is defined as the force exerted on economic agents by uncertainty and changing expectations of loss in financial markets and institutions.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets JEL Code(s): E, E5, G, G1, G10

• Collateral and Credit Supply

  Staff Working Paper 2003-11 Joseph Atta-Mensah

  The author examines the role of collateral in an environment where lenders and borrowers possess identical information and similar beliefs about its future value. Using option-pricing techniques, he shows that a secured loan contract is equivalent to a regular bond and an embedded option to the borrower to default.

  Content Type(s): Staff research, Staff working papers Topic(s): Credit and credit aggregates, Economic models JEL Code(s): E, E5, E51, G, G1, G11, G12, G13

• Valuation of Canadian- vs. U.S.-Listed Equity: Is There a Discount?

  Staff Working Paper 2003-6 Michael R. King, Dan Segal

  The authors examine how the valuation multiples assigned to the equity of Canadian-listed firms compare with the equity of comparable firms listed in the United States. They find that Canadian-listed firms trade at a discount to U.S.-listed firms across a range of valuation measures.

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

• Shift Contagion in Asset Markets

  Staff Working Paper 2003-5 Toni Gravelle, Maral Kichian, James Morley

  The authors develop a new methodology to investigate how crises cause the relationship between financial variables to change. Two possible sources of increased co-movement between markets during high-variance episodes are considered: larger common shocks operating through standard market linkages, and a structural change in the propagation of shocks between markets, called "shift contagion."

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): C, C3, C32, F, F4, F42, G, G1, G15

• Are Distorted Beliefs Too Good to be True?

  Staff Working Paper 2003-4 Miroslav Misina

  In a recent attempt to account for the equity-premium puzzle within a representative-agent model, Cecchetti, Lam, and Mark (2000) relax the assumption of rational expectations and in its place use the assumption of distorted beliefs. The author shows that the explanatory power of the distorted beliefs model is due to an inconsistency in the model and that an attempt to remove this inconsistency removes the model's explanatory power.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets JEL Code(s): D, D8, D84, G, G1, G12

• The Impact of Common Currencies on Financial Markets: A Literature Review and Evidence from the Euro Area

  Staff Working Paper 2002-35 Liliane Karlinger

  This paper reviews both the theoretical and empirical literature on the impact of common currencies on financial markets and evaluates the first three years of experience with Economic and Monetary Union (EMU).

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rate regimes, Financial markets JEL Code(s): E, E4, E44, F, F2, F21, F3, F36, G, G1, G15

• How Do Canadian Banks That Deal in Foreign Exchange Hedge Their Exposure to Risk?

  Staff Working Paper 2002-34 Chris D'Souza

  This paper examines the daily hedging and risk-management practices of financial intermediaries in the Canadian foreign exchange (FX) market.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): F, F3, F31, G, G1, G14, G2, G21