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449
result(s)
August 23, 2003
Financial Developments in Canada: Past Trends and Future Challenges
Freedman and Engert focus on the changing pattern of lending and borrowing in Canada in the past thirty to forty years, including the types of financial instruments used and the relative roles of financial institutions and financial markets. They examine how borrowing mechanisms have changed over time and consider the challenges facing the Canadian financial sector, including whether our financial markets are in danger of disappearing because of the size and pre-eminence of U.S. financial markets. Some of the trends examined here include syndicated lending, securitization, and credit derivatives, a form of financial engineering that has become increasingly important in the last few years. They also study bond and equity markets to determine whether Canadian capital markets have been hollowed out or abandoned by Canadian firms and conclude that the data do not provide much support for that view.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Financial institutions,
Financial markets,
Financial services,
Recent economic and financial developments
August 22, 2003
Measuring Interest Rate Expectations in Canada
Financial market expectations regarding future changes in the target for the overnight rate of interest are an important source of information for the Bank of Canada. Financial markets are the mechanism through which the policy rate affects other financial variables, such as longer-term interest rates, the exchange rate, and other asset prices. An accurate measure of their expectations can therefore help policy-makers assess the potential impact of contemplated changes. Johnson focuses on the expectations hypothesis, which measures expectations of future levels of the target overnight rate as implied by current money market yields. Although expectations can be derived from the current yield on any short-term fixed-income asset, some assets have proven to be more accurate predictors than others. The implementation of a policy of fixed-announcements dates has coincided with the increased predictive power of these short-term assets. As a result of this improvement, a relatively simple model of the yield curve can now provide an accurate measure of financial market expectations.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Exchange rates,
Financial markets,
Interest rates
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
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