September 11, 2009
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385
result(s)
September 11, 2009
Agency Conflicts in the Process of Securitization
Recent evidence finds a positive association between the prevalence of loans of inferior quality and the growth in securitized products. Some attribute this development to the lack of incentives for originators to screen and monitor the performance of securitized loans; others stress that certain factors, such as balance-sheet management, also contributed to the problem, making it difficult to pin down the reason for the proliferation of such loans during the period of high securitization growth. The author reviews the conflicts of interest between participants in the securitization process that contributed to the ongoing financial turmoil and highlights the most recent policy measures and potential solutions for ameliorating these agency issues.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Financial institutions,
Financial markets
Short Changed? The Market's Reaction to the Short Sale Ban of 2008
Staff Working Paper 2009-23
Louis Gagnon,
Jonathan Witmer
Do short sales restrictions have an impact on security prices? We address this question in the context of a natural experiment surrounding the short sale ban of 2008 using a comprehensive sample of Canadian stocks cross-listed in the U.S.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial markets,
International topics
JEL Code(s):
F,
F3,
F30,
G,
G0,
G01,
G1,
G18,
G2,
G20
The Equity Premium and the Volatility Spread: The Role of Risk-Neutral Skewness
Staff Working Paper 2009-20
Bruno Feunou,
Jean-Sébastien Fontaine,
Roméo Tedongap
We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk premium and of skewness.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial markets
JEL Code(s):
G,
G1,
G12,
G13
June 11, 2009
Collateral Management in the LVTS by Canadian Financial Institutions
This article examines the incentives for banks to hold various assets on their balance sheets for use as collateral when the opportunity cost of doing so can be high. Focusing on the five-year period (2002-07) that preceded the financial crisis, it examines the choices made by financial institutions among the assets that are pledged as collateral in Canada's Large Value Transfer System. This serves as a baseline for collateral-management practices during relatively normal times. The results of this study are important for policy-makers, especially the Bank of Canada, which is concerned both about the efficient functioning of fixed-income markets and about the credit risk it ultimately bears in insuring LVTS settlement. The results suggest that relative market liquidity and market-making capacity are important factors in the choice of securities pledged as collateral in the LVTS.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Financial institutions,
Financial markets,
Payment clearing and settlement systems
Real Effects of Price Stability with Endogenous Nominal Indexation
Staff Working Paper 2009-16
Césaire Meh,
Vincenzo Quadrini,
Yaz Terajima
We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997).
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Economic models,
Financial markets,
Monetary policy framework,
Monetary policy transmission
JEL Code(s):
E,
E2,
E21,
E3,
E31,
E4,
E44,
E5,
E52
Complex Ownership and Capital Structure
Staff Working Paper 2009-12
Teodora Paligorova,
Zhaoxia Xu
This paper investigates the impact of pyramid ownership structure and multiple controlling shareholders on firm leverage. Pyramids, having at least one controlling shareholder and a subsidiary, rely significantly more on debt financing than non-pyramid firms.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial markets,
International topics
JEL Code(s):
G,
G3,
G31,
G32
Comparison of Auction Formats in Canadian Government Auctions
Staff Working Paper 2009-5
Olivier Armantier,
Nourredine Lafhel
Using a rich sample of Canadian government securities auctions, we estimate the structural parameters of a share-auction model accounting for asymmetries across bidders. We find little evidence of asymmetries between participants at Canadian government nominal bond auctions.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Debt management,
Financial markets,
Market structure and pricing
JEL Code(s):
D,
D4,
D44,
D6,
D63,
G,
G2,
G28
The Impact of Market Timing on Canadian and U.S. Firms' Capital Structure
Staff Working Paper 2009-1
Zhaoxia Xu
This paper studies the impact of market timing on Canadian firms' capital structure and makes a comparison with U.S. firms.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial markets,
International topics
JEL Code(s):
G,
G3,
G32
How Important Is Liquidity Risk for Sovereign Bond Risk Premia? Evidence from the London Stock Exchange
Staff Working Paper 2008-47
Ron Alquist
This paper uses the framework of arbitrage-pricing theory to study the relationship between liquidity risk and sovereign bond risk premia. The London Stock Exchange in the late 19th century is an ideal laboratory in which to test the proposition that liquidity risk affects the price of sovereign debt.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Financial markets,
International topics
JEL Code(s):
F,
F2,
F21,
F3,
F34,
F36,
G,
G1,
G12,
G15