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
November 11, 2008 The Role of Dealers in Providing Interday Liquidity in the Canadian-Dollar Market Bank of Canada Review - Winter 2008-2009 Chris D'Souza Access to information about the future direction of the exchange rate can be extremely valuable in the foreign exchange market. Evidence presented in this article suggests that Canadian dealers are more likely to provide interday liquidity to foreign, rather than Canadian, financial customers, since foreign financial flows can be more informative about future movements in the exchange rate. The author reveals a statistical relationship between the supply of liquidity provided by non-financial firms and that provided by dealing institutions across time, and across markets, and suggests that the relationship between the positions of commercial clients and market-makers, and the role played by dealers in interday liquidity provision, has been understated in the market microstructure literature. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rates, Financial institutions, Financial markets, Market structure and pricing
The Role of Foreign Exchange Dealers in Providing Overnight Liquidity Staff Working Paper 2008-44 Chris D'Souza This paper illustrates that dealers in foreign exchange markets not only provide intraday liquidity, they are key participants in the provision of overnight liquidity. Dealing institutions receive compensation for holding undesired inventory balances in part from the information they receive in customer trades. Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets, Market structure and pricing JEL Code(s): D, D8, D82, F, F3, F31, G, G2, G21
Macroeconomic Determinants of the Term Structure of Corporate Spreads Staff Working Paper 2008-29 Jun Yang We investigate the macroeconomic determinants of corporate spreads using a no-arbitrage technique. Structural shocks are identified by a New-Keynesian model. Treasury bonds are priced in an affine model with time-varying risk premia. Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, G, G1, G12
The Implementation of Monetary Policy in Canada Staff Discussion Paper 2008-9 Walter Engert, Toni Gravelle, Donna Howard The authors present a detailed discussion of the Bank of Canada's framework for the implementation of monetary policy. As background, they provide a brief overview of the financial system in Canada, including a discussion of the financial services industry and the money market. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial markets, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E5, E52, E58, G, G2, G21
Information Shocks, Jumps, and Price Discovery - Evidence from the U.S. Treasury Market Staff Working Paper 2008-22 George Jiang, Ingrid Lo, Adrien Verdelhan We examine large price changes, known as jumps, in the U.S. Treasury market. Using recently developed statistical tools, we identify price jumps in the 2-, 3-, 5-, 10-year notes and 30-year bond during the period of 2005-2006. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): G, G1, G12, G14
The Cost of Equity in Canada: An International Comparison Staff Working Paper 2008-21 Jonathan Witmer This paper calculates an implied cost of equity for 19 developed countries from 1991 to 2006. During this period, there has been a decline in the cost of equity of about 10-15 bps per year, which can be partially attributed to declining government yields and declining inflation. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, International topics JEL Code(s): G, G3, G30, G38
June 19, 2008 China's Integration into the Global Financial System Bank of Canada Review - Summer 2008 Paul Masson, Wendy Dobson, Robert Lafrance Despite having the world's largest GDP when measured in terms of purchasing-power parities, the third-largest share in world exports, and the world's largest foreign exchange reserves, China has only a minor role in the global financial system. Its banks have a modest international presence; China's currency, the renminbi, is virtually not used outside the country; and Chinese capital markets are not a significant source of financing for foreign borrowers. China's modest level of integration into the global financial system is explained by the emphasis given to domestic policy priorities. As the Chinese economy matures, and as reforms strengthen the domestic financial system, China will become more important in global financial markets. Changes are already occurring as China's financial might is being channeled towards overseas investments, and the authorities have committed to greater exchange rate flexibility. These changes will facilitate integration into the global financial system. In this article, the authors describe the current situation and speculate on the future evolution of Chinese financial institutions and markets. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rate regimes, Financial markets, International topics
On Portfolio Separation Theorems with Heterogeneous Beliefs and Attitudes towards Risk Staff Working Paper 2008-16 Fousseni Chabi-Yo, Eric Ghysels, Eric Renault The early work of Tobin (1958) showed that portfolio allocation decisions can be reduced to a two stage process: first decide the relative allocation of assets across the risky assets, and second decide how to divide total wealth between the risky assets and the safe asset. This so called twofund separation relies on special assumptions on either returns or preferences. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): C, C5, C52, D, D5, D58, G, G1, G11, G12