Asset pricing
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Extreme Downside Risk in Asset Returns
Financial markets can experience sudden and extreme downward movements. Investors are highly concerned about the performance of their assets in such scenarios. Some assets perform badly in a downturn in the market; others have milder reactions. -
November 19, 2019
Climate change is a big issue for central banks
Climate change is transforming the economy and financial system -
Are Long-Horizon Expectations (De-)Stabilizing? Theory and Experiments
Most models in finance assume that agents make trading plans over the infinite future. We consider instead that they are boundedly rational and may only form forecasts over a limited horizon. -
Entrepreneurial Incentives and the Role of Initial Coin Offerings
Initial coin offerings (ICOs) are a new mode of financing start-ups that saw an explosion in popularity in 2017 but declined in popularity in the second half of 2018 as regulatory pressure, instances of fraud and reports of poor performance began to undermine their reputation. -
Do Survey Expectations of Stock Returns Reflect Risk Adjustments?
Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the literature on asset pricing are consistent with the survey evidence. -
Markets Look Beyond the Headline
Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact of non-headline information released on the news day is crucial in analyzing how markets interpret and react to new economic data. -
November 5, 2018
Making Sense of Markets
Governor Poloz discusses how the Bank uses financial market information in its monetary policy. -
The Impact of Government Debt Supply on Bond Market Liquidity: An Empirical Analysis of the Canadian Market
This paper finds that Government of Canada benchmark bonds tend to be more illiquid over the subsequent month when there is a large increase in government debt supply. The result is both statistically and economically significant, stronger for the long-term than the short-term sector, and is robust when other macro factors are controlled for. -
Ambiguity, Nominal Bond Yields and Real Bond Yields
Equilibrium bond-pricing models rely on inflation being bad news for future growth to generate upward-sloping nominal yield curves. We develop a model that can generate upward-sloping nominal and real yield curves by instead using ambiguity about inflation and growth.