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157 Results

March 17, 2008

Price Discovery Across Geographic Locations in the Foreign Exchange Market

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.

An Overview of Carbon Markets and Emissions Trading: Lessons for Canada

Staff Discussion Paper 2008-1 Michael R. King
The author provides an overview of carbon markets and explains how emissions trading can be important in encouraging the reduction of CO2 emissions in an efficient manner. He describes the key steps in establishing a cap-and-trade system, and reviews the European experiences with emissions trading. He highlights the lessons learned from the EU Emissions Trading […]

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.

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.
April 14, 2007

The Canadian Overnight Market: Recent Evolution and Structural Changes

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.

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.

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.

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.

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).
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