Testing Linear Factor Pricing Models with Large Cross-Sections: A Distribution-Free Approach Staff Working Paper 2010-36 Sermin Gungor, Richard Luger We develop a finite-sample procedure to test the beta-pricing representation of linear factor pricing models that is applicable even if the number of test assets is greater than the length of the time series. Our distribution-free framework leaves open the possibility of unknown forms of non-normalities, heteroskedasticity, time-varying correlations, and even outliers in the asset returns. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): C, C1, C12, C14, C3, C33, G, G1, G11, G12
Bank Competition and International Financial Integration: Evidence Using a New Index Staff Working Paper 2010-35 Gurnain Pasricha This paper finds a strong empirical link between domestic banking sector competitiveness and de facto international integration. De-facto international integration is measured through a new index of financial integration, which measures, for deviations from covered interest parity, the size of no-arbitrage bands and the speed of arbitrage outside the no-arbitrage band. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets, International topics JEL Code(s): F, F3, F32, G, G1, G15, G2, G21
The Macroeconomic Implications of Changes in Bank Capital and Liquidity Requirements in Canada: Insights from the BoC-GEM-FIN Staff Discussion Paper 2010-16 Carlos De Resende, Ali Dib, Nikita Perevalov The authors use simulations within the BoC-GEM-FIN, the Bank of Canada's version of the Global Economy Model with financial frictions in both the demand and supply sides of the credit market, to investigate the macroeconomic implications of changing bank regulations on the Canadian economy. Content Type(s): Staff research, Staff discussion papers Topic(s): Economic models, Financial institutions, Financial stability, International topics JEL Code(s): E, E3, E32, E4, E44, E5, G, G1, G2
Adverse Selection, Liquidity, and Market Breakdown Staff Working Paper 2010-32 Koralai Kirabaeva This paper studies the interaction between adverse selection, liquidity risk and beliefs about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if it is accompanied by a flight-to-liquidity, a misassessment of systemic risk, or uncertainty about asset values. Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Financial stability JEL Code(s): D, D8, D82, G, G0, G01, G1, G11
Text Mining and the Information Content of Bank of Canada Communications Staff Working Paper 2010-31 Scott Hendry, Alison Madeley This paper uses Latent Semantic Analysis to extract information from Bank of Canada communication statements and investigates what type of information affects returns and volatility in short-term as well as long-term interest rate markets over the 2002-2008 period. Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Monetary policy implementation JEL Code(s): E, E5, E58, G, G1, G14
Understanding Systemic Risk: The Trade-Offs between Capital, Short-Term Funding and Liquid Asset Holdings Staff Working Paper 2010-29 Céline Gauthier, Zhongfang He, Moez Souissi We offer a multi-period systemic risk assessment framework with which to assess recent liquidity and capital regulatory requirement proposals in a holistic way. Content Type(s): Staff research, Staff working papers Topic(s): Financial stability, Financial system regulation and policies JEL Code(s): C, C1, C15, C8, C81, E, E4, E44, G, G0, G01, G2, G21
Capital Requirement and Financial Frictions in Banking: Macroeconomic Implications Staff Working Paper 2010-26 Ali Dib The author develops a dynamic stochastic general-equilibrium model with an active banking sector, a financial accelerator, and financial frictions in the interbank and bank capital markets. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Financial markets, Financial stability JEL Code(s): E, E3, E32, E4, E44, G, G1
Losses from Simulated Defaults in Canada's Large Value Transfer System Staff Discussion Paper 2010-14 Nellie Zhang, Tom Hossfeld The Large Value Transfer System (LVTS) loss-sharing mechanism was designed to ensure that, in the event of a one-participant default, the collateral pledged by direct members of the system would be sufficient to cover the largest possible net debit position of a defaulting participant. However, the situation may not hold if the indirect effects of the defaults are taken into consideration, or if two participants default during the same payment cycle. Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial stability, Payment clearing and settlement systems JEL Code(s): E, E4, E47, G, G2, G21
Banks, Credit Market Frictions, and Business Cycles Staff Working Paper 2010-24 Ali Dib The author proposes a micro-founded framework that incorporates an active banking sector into a dynamic stochastic general-equilibrium model with a financial accelerator. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial stability JEL Code(s): E, E3, E32, E4, E44, G, G1
Liquidity, Risk, and Return: Specifying an Objective Function for the Management of Foreign Reserves Staff Discussion Paper 2010-13 Yuliya Romanyuk An objective function is a key component of a strategic portfolio management model used to determine the optimal allocations of assets and, possibly, their associated liabilities over some investment horizon. Content Type(s): Staff research, Staff discussion papers Topic(s): Foreign reserves management JEL Code(s): G, G1, G11