G12 - Asset Pricing; Trading volume; Bond Interest Rates

• Is the Excess Bond Premium a Leading Indicator of Canadian Economic Activity?

  Staff Analytical Note 2018-4 Maxime Leboeuf, Daniel Hyun

  This note investigates whether Canadian corporate spreads and the excess bond premium (EBP) lead Canadian economic activity. Indeed, we find that corporate spreads precede changes in real gross domestic product (GDP) in Canada over the subsequent year. The EBP accounts for most of this property. Further, an unanticipated increase in the Canadian EBP forecasts a deterioration of domestic macroeconomic conditions: a 10-basis-point increase results in a fall in both GDP and consumer price index (CPI) of 0.4 per cent and 0.1 per cent, respectively, over three years.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Business fluctuations and cycles, Financial markets JEL Code(s): E, E3, E32, E4, E44, G, G1, G12

• Government of Canada Securities in the Cash, Repo and Securities Lending Markets

  Staff Discussion Paper 2018-4 Narayan Bulusu, Sermin Gungor

  This paper documents the properties of Government of Canada securities in cash, repo and securities lending transactions over their life cycle. By tracking every security from issuance to maturity, we are able to highlight inter-linkages between the markets for cash and for specific securities.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Financial markets, Wholesale funding JEL Code(s): G, G1, G12, G2, G21, G23

• Variance Premium, Downside Risk and Expected Stock Returns

  Staff Working Paper 2017-58 Bruno Feunou, Ricardo Lopez Aliouchkin, Roméo Tedongap, Lai Xi

  We decompose total variance into its bad and good components and measure the premia associated with their fluctuations using stock and option data from a large cross-section of firms.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Financial markets JEL Code(s): G, G1, G12

• Risk-Neutral Moment-Based Estimation of Affine Option Pricing Models

  Staff Working Paper 2017-55 Bruno Feunou, Cédric Okou

  This paper provides a novel methodology for estimating option pricing models based on risk-neutral moments. We synthesize the distribution extracted from a panel of option prices and exploit linear relationships between risk-neutral cumulants and latent factors within the continuous time affine stochastic volatility framework.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods JEL Code(s): G, G1, G12

• Do Liquidity Proxies Measure Liquidity in Canadian Bond Markets?

  Staff Analytical Note 2017-23 Jean-Sébastien Fontaine, Jeffrey Gao, Jabir Sandhu, Kobe Wu

  This analytical note evaluates the reliability of proxies for measuring liquidity in Canadian bond markets. We find that price-impact and bid-ask proxies paint a similar picture of evolving liquidity conditions to that obtained from richer measures of liquidity for benchmark Government of Canada bonds.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Debt Management, Financial markets JEL Code(s): G, G1, G12, G14, G2, G23, G3, G32

• Good Volatility, Bad Volatility and Option Pricing

  Staff Working Paper 2017-52 Bruno Feunou, Cédric Okou

  Advances in variance analysis permit the splitting of the total quadratic variation of a jump diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods JEL Code(s): G, G1, G12

• The Impacts of Monetary Policy Statements

  Staff Analytical Note 2017-22 Bruno Feunou, Corey Garriott, James Kyeong, Raisa Leiderman

  In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Asset Pricing, Exchange rates, Interest rates, Monetary policy communications, Transmission of monetary policy JEL Code(s): E, E4, E43, E5, E52, F, F3, F31, G, G1, G12

• On the Tail Risk Premium in the Oil Market

  Staff Working Paper 2017-46 Reinhard Ellwanger

  This paper shows that changes in market participants’ fear of rare events implied by crude oil options contribute to oil price volatility and oil return predictability. Using 25 years of historical data, we document economically large tail risk premia that vary substantially over time and significantly forecast crude oil futures and spot returns.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods, Financial markets JEL Code(s): C, C5, C53, C58, D, D8, D84, E, E4, E44, G, G1, G12, G13, Q, Q4, Q43

• Measuring Limits of Arbitrage in Fixed-Income Markets

  Staff Working Paper 2017-44 Jean-Sébastien Fontaine, Guillaume Nolin

  We use relative value to measure limits to arbitrage in fixed-income markets. Relative value captures apparent deviations from no-arbitrage relationships. It is simple, intuitive and can be computed model-free for any bond.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Financial markets, International financial markets JEL Code(s): G, G1, G12

• A Counterfactual Valuation of the Stock Index as a Predictor of Crashes

  Staff Working Paper 2017-38 Tom Roberts

  Stock market fundamentals would not seem to meaningfully predict returns over a shorter-term horizon—instead, I shift focus to severe downside risk (i.e., crashes).

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Financial stability JEL Code(s): G, G0, G01, G1, G12, G17, G19