Chris D’Souza is a Principal Economist in the Canadian Economic Analysis (CEA) Department. His research interests include corporate finance, banking and market microstructure. Chris holds a Ph.D. in Economics from Queen’s University.
Staff Analytical Notes
Business investment has been lower than expected in Canada and abroad since the financial crisis of 2007–09. This corporate investment gap is mirrored in firms’ other financing decisions, as they have increased cash holdings and dividend payments and decreased issuance of debt and equity.
This note summarizes the key findings from Bank of Canada staff analytical work examining the reasons for the recent weakness in Canadian non-energy exports. Canada steadily lost market share in US non-energy imports between 2002 and 2017, mostly reflecting continued and broad-based competitiveness losses.
Staff Working Papers
We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada, and on the extent to which market discipline exists across different securities issued by the Canadian banks.
This paper illustrates that dealers in foreign exchange markets not only provide intraday liquidity, they are key participants in the provision of overnight liquidity. Dealing institutions receive compensation for holding undesired inventory balances in part from the information they receive in customer trades.
Trades in foreign exchange markets are initiated around the world and around the clock. This study illustrates that trades are more informative when initiated in a local country or in major foreign exchange centers like London and New York.
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.
The authors contrast the impact of two sources of information flow on the volatility of prices, trading activity, and liquidity in the brokered interdealer market for Government of Canada bonds.
An Empirical Analysis of Liquidity and Order Flow in the Brokered Interdealer Market for Government of Canada BondsThe authors empirically measure Canadian bond market liquidity using a number of indicators proposed in the literature and detail, for the first time, price and trade dynamics in the Government of Canada secondary bond market. They find, consistent with Inoue (1999), that the Canadian brokered interdealer fixed-income market is relatively liquid for its size.
This paper examines the daily hedging and risk-management practices of financial intermediaries in the Canadian foreign exchange (FX) market.
This paper clarifies the role and the impact of foreign exchange dealers in the relationship between foreign exchange intervention and nominal exchange rates using a unique dataset that disaggregates trades by dealer and by type of trade.
This paper investigates the effects of financial market consolidation on risk capital allocation in a financial institution and the implications for market liquidity in dealership markets. We show that an increase in financial market consolidation can have ambiguous effects on liquidity in foreign exchange and government securities markets.
Bank of Canada Review articles
May 11, 2017 Digital technologies—cloud computing, the Internet of Things, advanced robotics, big data analytics, artificial intelligence and machine learning, social media, 3D printing, augmented reality, virtual reality, e-money and distributed ledgers—are transforming the way busi-nesses operate. How does this transformation compare with past industrial revolutions? How are digital technologies changing production systems across industries? Agile firms that use knowledge intensively and have high levels of both organizational and human capital appear set to realize the greatest benefits from digitalization. Finally, what are the implications for productivity, labour markets, inflation and monetary policy as we transition to the digital economy?
June 11, 2009 This article examines the incentives for banks to hold various assets on their balance sheets for use as collateral when the opportunity cost of doing so can be high. Focusing on the five-year period (2002-07) that preceded the financial crisis, it examines the choices made by financial institutions among the assets that are pledged as collateral in Canada's Large Value Transfer System. This serves as a baseline for collateral-management practices during relatively normal times. The results of this study are important for policy-makers, especially the Bank of Canada, which is concerned both about the efficient functioning of fixed-income markets and about the credit risk it ultimately bears in insuring LVTS settlement. The results suggest that relative market liquidity and market-making capacity are important factors in the choice of securities pledged as collateral in the LVTS.
November 11, 2008 Access to information about the future direction of the exchange rate can be extremely valuable in the foreign exchange market. Evidence presented in this article suggests that Canadian dealers are more likely to provide interday liquidity to foreign, rather than Canadian, financial customers, since foreign financial flows can be more informative about future movements in the exchange rate. The author reveals a statistical relationship between the supply of liquidity provided by non-financial firms and that provided by dealing institutions across time, and across markets, and suggests that the relationship between the positions of commercial clients and market-makers, and the role played by dealers in interday liquidity provision, has been understated in the market microstructure literature.
March 17, 2008 The ongoing process of price discovery in foreign exchange markets provides valuable information to certain market participants. Recent empirical findings suggest that aggregate measures of order flow convey information about the fundamental value of the exchange rate. Using a market microstructure approach, D'Souza reports on a two-year study of completed transactions within the Canadian and Australian exchange rate markets to examine the relationship between exchange rate returns and trades initiated in different locations. Based on the information content of the trades, he finds that geographic location and hours of operation are two of the factors driving informed interdealer trading.
December 21, 2003 Technological progress and the liberalization of capital flows have both contributed to the considerable changes in global equity markets over the past few decades. Yet obstacles to international capital flows still exist, leading to segmentation of markets and creating incentives for corporate managers to adopt financial policies such as international cross-listing. In exploring the costs and benefits of cross-listing, Chouinard and D'Souza find that U.S. exchanges are attracting an increasing share of cross-listed firms. The empirical studies they review suggest that the cost of equity capital declines following a foreign listing as a result of lower transactions costs or an improvement in the quality and quantity of firm-specific information available to investors. As well, informational asymmetries across countries prevent simultaneous price discovery across exchanges.
Financial System Review articles
December 9, 2010
- “Funding Advantage and Market Discipline in the Canadian Banking Sector,”
(with M. Beyhaghi and G. Roberts), Journal of Banking & Finance, Volume 48, November 2014: 396-410.
- "The Effects of Bank Consolidation on Risk Capital Allocation and Market Liquidity"
(with A. Lai), 2006, in Journal of Financial Research, 29, p. 271-291.
- "How Liquid are Canadas?"
(with C. Gaa), 2004, Canadian Investment Review, Winter, p. 23-28.
- "How Do Banks Respond to Capital Shocks?"
(with A. Lai), 2004, Monetaria, 27:1 p. 33-56.