Regulatory Constraints on Bank Leverage: Issues and Lessons from the Canadian Experience Staff Discussion Paper 2009-15 Étienne Bordeleau, Allan Crawford, Christopher Graham The Basel capital framework plays an important role in risk management by linking a bank's minimum capital requirements to the riskiness of its assets. Nevertheless, the risk estimates underlying these calculations may be imperfect, and it appears that a cyclical bias in measures of risk-adjusted capital contributed to procyclical increases in global leverage prior to the recent financial crisis. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G2, G21, G28
Market Timing of Long-Term Debt Issuance Staff Discussion Paper 2009-14 Jonathan Witmer The literature on market timing of long-term debt issuance yields mixed evidence that managers can successfully time their debt-maturity issuance. The early results that are indicative of debt-maturity timing are not robust to accounting for structural breaks or to other measures of debt maturity from firm-level data that account for call and put provisions in […] Content Type(s): Staff research, Staff discussion papers Research Topic(s): Financial markets, International topics JEL Code(s): G, G3, G30, G38
Network Analysis and Canada's Large Value Transfer System Staff Discussion Paper 2009-13 Lana Embree, Tom Roberts Analysis of the characteristics and structure of a network of financial institutions can provide insight into the complex relationships and interdependencies that exist in a payment, clearing, and settlement system (PCSS), and allow an intuitive understanding of the PCSS's efficiency, stability, and resiliency. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Financial stability, Payment clearing and settlement systems JEL Code(s): D, D8, D85, G, G1, G10
Measures of Aggregate Credit Conditions and Their Potential Use by Central Banks Staff Discussion Paper 2009-12 Alejandro García, Andrei Prokopiw Understanding the nature of credit risk has important implications for financial stability. Since authorities – notably, central banks – focus on risks that have systemic implications, it is crucial to develop ways to measure these risks. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Credit and credit aggregates, Financial markets, Financial stability JEL Code(s): G, G1, G10, G12, G13
Cross-border Mergers and Hollowing-out Staff Working Paper 2009-30 Oana Secrieru, Marianne Vigneault The purpose of our paper is to examine the profitability and social desirability of both domestic and foreign mergers in a location-quantity competition model, where we allow for the possibility of hollowing-out of the target firm. We refer to hollowing-out as the situation where the target firm is shut down following a merger with a domestic or foreign acquirer. Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, International topics, Market structure and pricing JEL Code(s): D, D4, D43, G, G3, G34, L, L1, L13, L4, L41
Short Changed? The Market's Reaction to the Short Sale Ban of 2008 Staff Working Paper 2009-23 Louis Gagnon, Jonathan Witmer Do short sales restrictions have an impact on security prices? We address this question in the context of a natural experiment surrounding the short sale ban of 2008 using a comprehensive sample of Canadian stocks cross-listed in the U.S. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, International topics JEL Code(s): F, F3, F30, G, G0, G01, G1, G18, G2, G20
The Equity Premium and the Volatility Spread: The Role of Risk-Neutral Skewness Staff Working Paper 2009-20 Bruno Feunou, Jean-Sébastien Fontaine, Roméo Tedongap We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk premium and of skewness. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets JEL Code(s): G, G1, G12, G13
Testing for Financial Contagion with Applications to the Canadian Banking System Staff Working Paper 2009-14 Fuchun Li The author proposes a new test for financial contagion based on a non-parametric measure of the cross-market correlation. The test does not depend on the assumption that the data are drawn from a given probability distribution; therefore, it allows for maximal flexibility in fitting into the data. Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Econometric and statistical methods, Financial stability JEL Code(s): C, C1, C12, G, G0, G01, G1, G15
Price Movements in the Canadian Residential Mortgage Market Staff Working Paper 2009-13 Jason Allen, Darcey McVanel The authors empirically analyze the price-setting behaviour of the major Canadian banks in the residential mortgage market over the period 1991–2007. They use weekly posted prices of the major mortgage providers to study the degree of competition in mortgage price setting. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial institutions, Financial services JEL Code(s): D, D4, G, G2
Complex Ownership and Capital Structure Staff Working Paper 2009-12 Teodora Paligorova, Zhaoxia Xu This paper investigates the impact of pyramid ownership structure and multiple controlling shareholders on firm leverage. Pyramids, having at least one controlling shareholder and a subsidiary, rely significantly more on debt financing than non-pyramid firms. Content Type(s): Staff research, Staff working papers Research Topic(s): Financial markets, International topics JEL Code(s): G, G3, G31, G32