Trading on Long-term Information Staff Working Paper 2020-20 Corey Garriott, Ryan Riordan Investors who trade based on good research are said to be the backbone of stock markets: They conduct research to discover the value of stocks and, through their trading, guide financial prices to reflect true value. What can make their job difficult is that high-speed, short-term traders could use machine learning and other technologies to infer when informed investors are trading. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1
The Effect of Oil Price Shocks on Asset Markets: Evidence from Oil Inventory News Staff Working Paper 2020-8 Ron Alquist, Reinhard Ellwanger, Jianjian Jin We quantify the reaction of U.S. equity, bond futures, and exchange rate returns to oil price shocks driven by oil inventory news. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Recent economic and financial developments JEL Code(s): D, D8, D83, E, E4, E44, G, G1, G14, G15, Q, Q4, Q41, Q43
The BoC-BoE Sovereign Default Database: What’s New in 2019? Staff Working Paper 2019-39 David Beers, Patrisha de Leon-Manlagnit Until recently, few efforts have been made to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada (BoC) developed a comprehensive database of sovereign defaults that is posted on its website and updated in partnership with the Bank of England (BoE). Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Development economics, Financial stability, International financial markets JEL Code(s): F, F3, F34, G, G1, G10, G14, G15
Using Exchange-Traded Funds to Measure Liquidity in the Canadian Corporate Bond Market Staff Analytical Note 2019-25 Rohan Arora, Guillaume Ouellet Leblanc, Jabir Sandhu, Jun Yang We introduce a new proxy for measuring corporate bond liquidity, using the price of exchange-traded funds (ETFs) that hold corporate bonds. It measures the average liquidity across 900 corporate bonds every day, many more than other proxies used in previous Bank of Canada analysis. The new proxy nonetheless paints a very similar picture of liquidity conditions and confirms the previous findings: the liquidity of bonds has generally improved since 2010. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14
Bond Funds and Fixed-Income Market Liquidity: A Stress-Testing Approach Technical Report No. 115 Rohan Arora, Guillaume Bédard-Pagé, Guillaume Ouellet Leblanc, Ryan Shotlander This report provides a detailed technical description of a stress test model for investment funds called Ceto. Content Type(s): Staff research, Technical reports Topic(s): Economic models, Financial institutions, Financial markets, Financial stability JEL Code(s): G, G1, G12, G14, G2, G20, G23
The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility Staff Analytical Note 2018-39 Adam Albogatchiev, Jean-Sébastien Fontaine, Jabir Sandhu, Reginald Xie 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. Content Type(s): Staff research, Staff analytical notes Topic(s): Exchange rates, Financial markets, Monetary policy JEL Code(s): E, E4, E44, F, F3, F31, G, G1, G10, G12, G14, G15
Markets Look Beyond the Headline Staff Analytical Note 2018-37 Bruno Feunou, James Kyeong, Raisa Leiderman Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact of non-headline information released on the news day is crucial in analyzing how markets interpret and react to new economic data. Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Exchange rates, Interest rates JEL Code(s): E, E4, E43, G, G1, G12, G14
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
Have Liquidity and Trading Activity in the Canadian Provincial Bond Market Deteriorated? Staff Analytical Note 2018-30 Chen Fan, Sermin Gungor, Guillaume Nolin, Jun Yang In recent years, the liquidity in the secondary market for Canadian provincial bonds was a concern for many market participants. We find that a proxy for the bid-ask spread has deteriorated modestly since 2010. However, a proxy for price impact as well as measures of trade size, the number of trades and turnover have been stable or improved since 2010. This holds for bonds issued by different provinces and for bonds of different ages and sizes. Alberta bonds provide an interesting case study: After the fall in oil prices in 2014–15, the province increased its borrowing in the bond market and its credit rating was downgraded. Yet trading activity for Alberta bonds increased significantly. Overall, we interpret the evidence as a sign of resilience in the provincial bond market. Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets JEL Code(s): G, G1, G12, G14
The BoC-BoE Sovereign Default Database Revisited: What’s New in 2018? Staff Working Paper 2018-30 David Beers, Jamshid Mavalwalla Until recently, there have been few efforts to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada’s Credit Rating Assessment Group (CRAG) has developed a comprehensive database of sovereign defaults posted on the Bank of Canada’s website that now is updated in partnership with the Bank of England. Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Development economics, Financial stability, International financial markets JEL Code(s): F, F3, F34, G, G1, G10, G14, G15