Financial markets

• What Fed Funds Futures Tell Us About Monetary Policy Uncertainty

  Staff Working Paper 2016-61 Jean-Sébastien Fontaine

  The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a “path” factor signaling information about future policy actions, which is filtered from federal funds futures data.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13

• Equity Option-Implied Probability of Default and Equity Recovery Rate

  Staff Working Paper 2016-58 Bo Young Chang, Greg Orosi

  There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability.

  Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Market structure and pricing JEL Code(s): G, G1, G13, G3, G33
• December 15, 2016

  Toward More Resilient Markets: Over-the-Counter Derivatives Reform in Canada

  Financial System Review - December 2016 Michael Mueller, André Usche

  In Toward More Resilient Markets: Over-the-Counter Derivatives Reform in Canada, Michael Mueller and André Usche show that the implementation of derivatives market reforms in Canada is well under way and has lessened vulnerabilities. But accompanying changes to market structure have both positive and negative effects that require ongoing attention from authorities.

  Content Type(s): Publications, Financial System Review articles Topic(s): Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): G, G0, G01, G1, G15, G2, G28
• December 15, 2016

  Monitoring Shadow Banking in Canada: A Hybrid Approach

  Financial System Review - December 2016 Bo Young Chang, Gitanjali Kumar, André Usche, Michael Januska

  In Monitoring Shadow Banking in Canada: A Hybrid Approach, Bo Young Chang, Michael Januska, Gitanjali Kumar and André Usche discuss how lending that occurs outside the traditional banking system provides benefits to the economy but must be monitored carefully for potential financial sector vulnerabilities. They describe how the Bank defines and measures shadow banking and how it assesses vulnerabilities in the sector, using an approach that examines both markets and entities.

  Content Type(s): Publications, Financial System Review articles Topic(s): Financial institutions, Financial markets, Financial stability JEL Code(s): G, G0, G01, G2, G23

• Options Decimalization

  Staff Working Paper 2016-57 Faith Chin, Corey Garriott

  We document the outcome of an options decimalization pilot on Canada’s derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10

• Broker Routing Decisions in Limit Order Markets

  Staff Working Paper 2016-50 David Cimon

  The primary focus of this paper is to study conflict of interest in the brokerage market. Brokers face a conflict of interest when the commissions they receive from investors differ from the costs imposed by different trading venues.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Market structure and pricing JEL Code(s): G, G2, G24, G28
• November 17, 2016

  Market Operations and Liquidity Provision at the Bank of Canada

  Bank of Canada Review - Autumn 2016 Mark de Guzman

  The Bank of Canada’s framework for market operations and liquidity provision describes how and when central bank liquidity might be offered with regards to the implementation of monetary policy and for supporting the stability of the Canadian financial system. Market participants can therefore plan their transactions knowing that the Bank stands ready to help manage system liquidity to support its objectives for monetary policy and financial stability.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, Financial stability, Monetary policy framework, Monetary policy implementation, Monetary policy transmission, Payment clearing and settlement systems JEL Code(s): E, E4, E42, E5, E52, E58, G, G0, G01
• November 16, 2016

  Follow the Money: A Canadian Perspective on Financial Globalization

  Remarks Timothy Lane Centre for International Governance Innovation (CIGI) Waterloo, Ontario

  Deputy Governor Timothy Lane discusses the benefits and challenges of international capital mobility.

  Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Balance of payments and components, Exchange rates, Financial markets, International financial markets, Market structure and pricing, Trade integration

• Fragility of Resale Markets for Securitized Assets and Policy of Asset Purchases

  Staff Working Paper 2016-46 Martin Kuncl

  Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial markets, Financial stability, Financial system regulation and policies JEL Code(s): E, E3, E32, E5, G, G0, G01, G2
• September 14, 2016

  (S)low for Long and Financial Stability

  Remarks Carolyn A. Wilkins Official Monetary and Financial Institutions Forum City Lecture London, United Kingdom

  Senior Deputy Governor Carolyn Wilkins discusses the financial stability risks associated with slow growth and low interest rates, and explores strategies to mitigate them.

  Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Financial markets, Financial stability, Interest rates, International topics, Monetary policy implementation, Potential output