Market structure and pricing

• 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
• April 14, 2007

  The Canadian Overnight Market: Recent Evolution and Structural Changes

  Bank of Canada Review - Spring 2007 Christopher Reid

  Since 1997 when the Bank of Canada last published a review of the Canadian overnight market, several important changes have affected the market's structure and dynamics. Reid provides a current overview of the market, examining the financial instruments, market transparency and flows, and the collateralized overnight rate as it has evolved since the introduction of the Large Value Transfer System and the fixed announcement dates. Other significant influences include changes in market practices regarding risk management, the rise of securities lending, the increased demand for collateral, and the Bank of Canada's measures to reinforce the target for the overnight rate.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Market structure and pricing, Monetary policy framework, Monetary policy implementation

• 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

• Impact of Electronic Trading Platforms on the Brokered Interdealer Market for Government of Canada Benchmark Bonds

  Staff Working Paper 2007-5 Natasha Khan

  This study examines the impact of increased transparency, brought about by the introduction of three electronic trading systems, on the brokered interdealer market for Government of Canada benchmark securities. Using the CanPX dataset for the 2-, 5-, 10-, and 30-year benchmarks, the paper finds some evidence of decreased bid-ask spreads for the 30-year benchmark in the months following the introduction of the electronic platforms.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G10, G14

• Price Discovery in Canadian Government Bond Futures and Spot Markets

  Staff Working Paper 2007-4 Christopher Chung, Bryan Campbell, Scott Hendry

  In this paper we look at the relative information content of cash and futures prices for Canadian Government bonds. We follow the information-share approaches introduced by Hasbrouck (1995) and Harris et al (1995), applying the techniques in Gonzalo-Granger (1995), to evaluate the relative contributions of trading in the cash and futures markets to the price discovery process.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G1, G12, G13, G14

• Conditioning Information and Variance Bounds on Pricing Kernels with Higher-Order Moments: Theory and Evidence

  Staff Working Paper 2006-38 Fousseni Chabi-Yo

  The author develops a strategy for utilizing higher moments and conditioning information efficiently, and hence improves on the variance bounds computed by Hansen and Jagannathan (1991, the HJ bound) and Gallant, Hansen, and Tauchen (1990, the GHT bound).

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): C, C6, C61, G, G1, G12, G13

• Credit in a Tiered Payments System

  Staff Working Paper 2006-36 Alexandra Lai, Nikil Chande, Sean O'Connor

  Payments systems are typically characterized by some degree of tiering, with upstream firms (clearing agents) providing settlement accounts to downstream institutions that wish to clear and settle payments indirectly in these systems (indirect clearers).

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial services, Market structure and pricing, Payment clearing and settlement systems JEL Code(s): G, G2, G21, L, L1, L12, L13, L2, L22

• Multinationals and Exchange Rate Pass-Through

  Staff Working Paper 2006-30 Alexandra Lai, Oana Secrieru

  The authors examine the impact of multinational enterprises (MNEs) on exchange rate pass-through in an environment where an MNE engages in Cournot (quantity) competition with domestic and foreign rivals.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Exchange rates, Market structure and pricing JEL Code(s): F, F2, F23, L, L1, L16

• Order Submission: The Choice between Limit and Market Orders

  Staff Working Paper 2005-42 Ingrid Lo, Stephen Sapp

  Most financial markets allow investors to submit both limit and market orders, but it is not always clear what affects the choice of order type.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial institutions, Market structure and pricing JEL Code(s): D, D4, G, G1