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449 result(s)

Do Survey Expectations of Stock Returns Reflect Risk Adjustments?

Staff Working Paper 2019-11 Klaus Adam, Dmitry Matveev, Stefan Nagel
Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the literature on asset pricing are consistent with the survey evidence.

Liquidity Management of Canadian Corporate Bond Mutual Funds: A Machine Learning Approach

Staff Analytical Note 2019-7 Rohan Arora, Chen Fan, Guillaume Ouellet Leblanc
When redeeming shares for investors, bond fund managers must choose a mix of cash and bond sales to honour their commitments. This note uses machine learning algorithms to uncover new patterns in decisions fund managers make to meet redemptions.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

Corporate Debt Composition and Business Cycles

Staff Working Paper 2019-5 Jelena Zivanovic
Based on empirical evidence, I propose a dynamic stochastic general equilibrium model with two financial sectors to analyze the role of corporate debt composition (bank versus bond financing) in the transmission of economic shocks.

Price Caps in Canadian Bond Borrowing Markets

Price controls, or caps, can lead to shortages, as 1970’s gasoline price controls illustrate. One million trades show that the market for borrowing bonds in Canada has an implicit price cap: traders are willing to pay no more than the overnight interest rate to borrow a bond. This suggests the probability of a shortage increases when interest rates are very low.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G10, G12

The Secular Decline of Forecasted Interest Rates

Staff Analytical Note 2019-1 Bruno Feunou, Jean-Sébastien Fontaine
Canadian interest rates show a secular decline since the 1980s. Long-term survey-based forecasts of interest rates also declined, but less so and were more gradual. Our model-based estimates show an endpoint shifting over time in three phases: a decline between 1990 and 1995, a period of stability between 1996 and 2007, and a further decline since 2008. The current endpoint estimate remains clouded with uncertainty; this is an active area of research.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G1, G12

Inference in Games Without Nash Equilibrium: An Application to Restaurants’ Competition in Opening Hours

Staff Working Paper 2018-60 Erhao Xie
This paper relaxes the Bayesian Nash equilibrium (BNE) assumption commonly imposed in empirical discrete choice games with incomplete information. Instead of assuming that players have unbiased/correct expectations, my model treats a player’s belief about the behavior of other players as an unrestricted unknown function. I study the joint identification of belief and payoff functions.

Alternative Futures for Government of Canada Debt Management

This paper presents four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile. We argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds and thus lowering their cost at issuance.

The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility

We identify a few Bank of Canada press releases that had the largest immediate impact on the exchange rate market. We find that volatility increases after these releases, but the effect is short-lived and mostly dissipates after the first hour, on average. Beyond the first hour, the size of the effect is similar to what we observe for other economic releases, such as those for inflation or economic growth data.

Does US or Canadian Macro News Drive Canadian Bond Yields?

Staff Analytical Note 2018-38 Bruno Feunou, Rodrigo Sekkel, Morvan Nongni-Donfack
We show that a large share of low-frequency (quarterly) movements in Canadian government bond yields can be explained by macroeconomic news, even though high-frequency (daily) changes are driven by other shocks. Furthermore, we show that US macro news—not domestic news— explains most of the quarterly variation in Canadian bond yields.

Have Liquidity and Trading Activity in the Canadian Corporate Bond Market Deteriorated?

Staff Analytical Note 2018-31 Chen Fan, Sermin Gungor, Guillaume Nolin, Jun Yang
Since 2010, the liquidity of corporate bonds has improved on average, while their trading activity has remained stable. We find that the liquidity and trading activity of riskier bonds or bonds issued by firms in different sectors have been stable. However, the liquidity and trading activity of bonds issued by banks have improved. We observe short-lived episodes of deterioration in liquidity and trading activity.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14
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