What cured the TSX Equity index after COVID-19? Staff Analytical Note 2021-3 Guillaume Ouellet Leblanc, Jean-Sébastien Fontaine, Ryan Shotlander The TSX index rose by 9.5 percent in November 2020, adding large gains to an already sharp V-shaped recovery. The economic outlook improved at that time as well. We ask whether the stock market gains since last autumn are due to improving forecasts of firms’ earnings. Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Coronavirus disease (COVID-19), Financial markets JEL Code(s): G, G1, G12, G14
Secular Economic Changes and Bond Yields Staff Working Paper 2021-14 Bruno Feunou, Jean-Sébastien Fontaine We investigate the economic forces behind the secular decline in bond yields. Before the anchoring of inflation in the mid-1990s, nominal shocks drove inflation, output and bond yields. Afterward, the impacts of nominal shocks were much less significant. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Interest rates, Monetary policy and uncertainty, Potential output JEL Code(s): E, E4, E43, G, G1, G12
Strategic Uncertainty in Financial Markets: Evidence from a Consensus Pricing Service Staff Working Paper 2020-55 Lerby Ergun, Andreas Uthemann We look at the informational content of consensus pricing in opaque over-the-counter markets. We show that the availability of price data informs participants mainly about other participants’ valuations, rather than about the value of a financial security. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): C, C5, C58, D, D5, D53, D8, D83, G, G1, G12, G14
Canadian stock market since COVID‑19: Why a V-shaped price recovery? Staff Analytical Note 2020-22 Jean-Sébastien Fontaine, Guillaume Ouellet Leblanc, Ryan Shotlander Between February 19 and March 23, 2020, the Canadian stock market plunged due to the severe economic impact of COVID-19. By the end of the summer, the stock market had already recovered a significant portion of its losses, leaving many asking if investors see the economy through rose-coloured glasses. Despite these concerns, we find that current market valuations for companies on the Toronto Stock Exchange align well, on average, with the declines in earning forecasts observed since the start of the year. We also find these market valuations are consistent with the discount rate returning to its pre-pandemic level. Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Coronavirus disease (COVID-19), Financial markets JEL Code(s): G, G1, G12, G14
Is the stock market pricing in a V‑shaped recovery? Staff Analytical Note 2020-17 James Kyeong Major stock indexes have bounced back from their March 23 trough to about 10 percent below their peaks. However, stocks that are more sensitive to the business cycle have not performed as well during this market rally. This suggests that stock markets are pricing in a slower, shallower economic recovery. Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Financial markets JEL Code(s): E, E4, E44, G, G1, G12, G14
Maturity Composition and the Demand for Government Debt Staff Working Paper 2020-29 Jason Allen, Jakub Kastl, Milena Wittwer The main objectives of debt management are to raise stable and low-cost funding to meet the government’s financial needs and to maintain a well-functioning market for government securities. Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Financial markets JEL Code(s): C, C1, C14, D, D4, D44, E, E5, E58, G, G1, G12
Trading for Bailouts Staff Working Paper 2020-23 Toni Ahnert, Caio Machado, Ana Elisa Pereira In times of high uncertainty, governments often implement interventions such as bailouts to financial institutions. To use public resources efficiently and to avoid major spillovers to the rest of the economy, policy-makers try to identify which institutions should receive assistance. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Financial system regulation and policies, Lender of last resort JEL Code(s): D, D8, D83, G, G1, G12, G14, G18
The Term Structures of Loss and Gain Uncertainty Staff Working Paper 2020-19 Bruno Feunou, Ricardo Lopez Aliouchkin, Roméo Tedongap, Lai Xu We investigate the uncertainty around stock returns at different investment horizons. Since a return is either a loss or a gain, we categorize return uncertainty into two components—loss uncertainty and gain uncertainty. We then use these components to evaluate investment. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): G, G1, G12
Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields Staff Working Paper 2020-14 Guihai Zhao This equilibrium model explains the trend in long-term yields and business-cycle movements in short-term yields and yield spreads. The less-frequent inverted yield curves (and less-frequent recessions) after the 1990s are due to recent secular stagnation and procyclical inflation expectations. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12
A Portfolio-Balance Model of Inflation and Yield Curve Determination Staff Working Paper 2020-6 Antonio Diez de los Rios How does the supply of nominal government debt affect the macroeconomy? To answer this question, we propose a portfolio-balance model of the yield curve in which inflation is determined through an interest rate rule. Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Debt management, Inflation and prices, Interest rates, Monetary policy JEL Code(s): E, E4, E43, E5, E52, G, G1, G12, H, H6, H63