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In 2015, TSX Alpha, a Canadian stock exchange, implemented a speed bump for marketable orders and an inverted fee structure as part of a redesign. We find no evidence that this redesign impacted market-wide measures of trading costs or contributed appreciably to segmenting retail order flow away from other Canadian venues with a maker-taker fee structure.

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.

This note presents a composite indicator of Canadian financial system vulnerabilities—the Vulnerabilities Barometer. It aims to complement the Bank of Canada’s vulnerabilities assessment by adding a quantitative and synthesized perspective to the more granular (distributional) analysis presented in the Financial System Review.

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.

We study settlement fails for trades in the Government of Canada bond market. We find that settlement fails do not occur independently. Using a novel and comprehensive dataset, we examine three drivers of fails.

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.

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.

In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements. When the market perceives that the Bank of Canada plans to tighten (or alternatively, loosen) the monetary policy earlier than previously expected, the Canadian dollar appreciates (or depreciates) and long-term Government of Canada bond yields increase (or decrease). The tone of a statement is particularly relevant to the market when the policy rate has been unchanged for some time.

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.

The Bank’s internal credit risk assessment abilities are regularly enhanced. In this note, we present a recent innovation that extends the set of market-based indicators used in the credit risk assessment of financial counterparties.