Hedge Funds and Financial Stability: The State of the Debate Staff Discussion Paper 2007-9 Michael R. King, Philipp Maier The authors review the state of the debate on hedge funds and the potential threat that hedge funds pose to financial stability. The collapse of a hedge fund or a group of hedge funds might pose a systemic risk directly by damaging systematically important financial institutions, or indirectly by increasing market volatility and generating a […] Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): G, G1, G15, G18, G2
Implications of Asymmetry Risk for Portfolio Analysis and Asset Pricing Staff Working Paper 2007-47 Fousseni Chabi-Yo, Dietmar Leisen, Eric Renault Asymmetric shocks are common in markets; securities' payoffs are not normally distributed and exhibit skewness. This paper studies the portfolio holdings of heterogeneous agents with preferences over mean, variance and skewness, and derives equilibrium prices. 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
Price Discovery in Canadian and U.S. 10-Year Government Bond Markets Staff Working Paper 2007-43 Bryan Campbell, Scott Hendry This paper presents some new results on the price discovery process in both the Canadian and U.S. 10-year Government bond markets using high-frequency data not previously analyzed. Using techniques introduced by Hasbrouck (1995) and Gonzalo-Granger (1995), we look at the relative information content of cash and futures prices in the market for Canadian Government bonds using futures market data from the Montreal Exchange and OTC cash market data reflecting the inter-dealer market covered by CanPx. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G12, G13, G14
Family Values: Ownership Structure, Performance and Capital Structure of Canadian Firms Staff Working Paper 2007-40 Michael R. King, Eric Santor This study examines how family ownership affects the performance and capital structure of 613 Canadian firms using a panel dataset from 1998 to 2005. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, International topics JEL Code(s): G, G1, G12, G15
Exchange Rate Regimes, Globalisation, and the Cost of Capital in Emerging Markets Staff Working Paper 2007-29 Antonio Diez de los Rios This paper presents a multifactor asset pricing model for currency, bond, and stock returns for ten emerging markets to investigate the effect of the exchange rate regime on the cost of capital and the integration of emerging financial markets. Since there is evidence that a fixed exchange rate regime reduces the currency risk premia demanded by foreign investors, the tentative conclusion is that a fixed exchange rate regime system can help reduce the cost of capital in emerging markets. Content Type(s): Staff research, Staff working papers Topic(s): Development economics, Exchange rate regimes JEL Code(s): F, F3, F30, F33, G, G1, G15
Price Formation and Liquidity Provision in Short-Term Fixed Income Markets Staff Working Paper 2007-27 Chris D'Souza, Ingrid Lo, Stephen Sapp Differences in market structures may affect the manner in which fundamental information is incorporated into prices. High levels of quote and trade transparency plus substantial quoting obligations in European government securities markets ensure that prices are informationally efficient. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates, Market structure and pricing JEL Code(s): G, G1, G12, G14, G15
Managing Adverse Dependence for Portfolios of Collateral in Financial Infrastructures Staff Working Paper 2007-25 Alejandro García, Ramazan Gençay We propose a framework that allows a portfolio manager to quantify the probability of simultaneous losses in multiple assets of a collateral portfolio. Using this framework, we propose a methodology to conduct stress tests on the market value of the portfolio of collateral when undesirable extreme dependence occurs. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets, Financial stability JEL Code(s): C, C1, C10, G, G0, G00, G1, G10
Order Aggressiveness and Quantity: How Are They Determined in a Limit Order Market? Staff Working Paper 2007-23 Ingrid Lo, Stephen Sapp Dealers trading in a limit order market must choose both the order aggressiveness and the quantity for their orders. We empirically investigate how dealers jointly make these decisions in the foreign exchange market using a unique simultaneous equations model. Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets JEL Code(s): G, G1, G14
A No-Arbitrage Analysis of Macroeconomic Determinants of Term Structures and the Exchange Rate Staff Working Paper 2007-21 Fousseni Chabi-Yo, Jun Yang We study the joint dynamics of macroeconomic variables, bond yields, and the exchange rate in an empirical two-country New-Keynesian model complemented with a no-arbitrage term structure model. With Canadian and US data, we are able to study the impact of macroeconomic shocks from both countries on their yield curves and the exchange rate. Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Econometric and statistical methods, Exchange rates, Financial markets, Interest rates JEL Code(s): E, E1, E12, E4, E43, F, F4, F41, G, G1, G12, G15
Multivariate Realized Stock Market Volatility Staff Working Paper 2007-20 Gregory Bauer, Keith Vorkink We present a new matrix-logarithm model of the realized covariance matrix of stock returns. The model uses latent factors which are functions of both lagged volatility and returns. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): C, C3, C32, C5, C53, G, G1, G14