Financial markets

• Strategic Uncertainty in Financial Markets: Evidence from a Consensus Pricing Service

  Staff Working Paper 2020-55 Lerby Ergun, Andreas Uthemann

  We look at the informational content of consensus pricing in opaque over-the-counter markets. We show that the availability of price data informs participants mainly about other participants’ valuations, rather than about the value of a financial security.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial institutions, Financial markets, Market structure and pricing JEL Code(s): C, C5, C58, D, D5, D53, D8, D83, G, G1, G12, G14
• November 23, 2020

  Taking the pulse of Canada’s financial system

  Speech summary Toni Gravelle Autorité des marchés financiers Montréal, Quebec

  Deputy Governor Toni Gravelle discusses how the Bank of Canada is carefully monitoring our financial system as the economy recovers from the COVID‑19 pandemic.

  Content Type(s): Press, Speeches and appearances, Speech summaries Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Financial institutions, Financial markets, Financial stability, Recent economic and financial developments
• November 23, 2020

  Financial stability and the COVID-19 pandemic

  Remarks (delivered virtually) Toni Gravelle Autorité des marchés financiers Montréal, Quebec

  Deputy Governor Toni Gravelle provides an assessment of risks to the stability of the Canadian financial system, including risks stemming from the COVID-19 pandemic.

  Content Type(s): Press, Speeches and appearances, Remarks Topic(s): Business fluctuations and cycles, Coronavirus disease (COVID-19), Financial institutions, Financial markets, Financial stability, Recent economic and financial developments

• Concentration in the market of authorized participants of US fixed-income exchange-traded funds

  Staff Analytical Note 2020-27 Rohan Arora, Sébastien Betermier, Guillaume Ouellet Leblanc, Adriano Palumbo, Ryan Shotlander

  We show that a small number of authorized participants (APs) actively create and redeem shares of US-listed fixed-income exchange-traded funds (FI-ETFs). In 2019, three APs performed 82 percent of gross creations and redemptions of FI-ETF shares. In contrast, the group of active APs for equity ETFs was much more diverse.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Coronavirus disease (COVID-19), Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• Outside Investor Access to Top Management: Market Monitoring versus Stock Price Manipulation

  Staff Working Paper 2020-43 Josef Schroth

  Should managers be paid in stock options if they provide stock-market participants with information about the firm? This paper studies how firm owners trade off the benefit of stock-price incentives and better-informed market participants against the cost of potential stock-price manipulation.

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Financial markets, Recent economic and financial developments JEL Code(s): D, D8, D82, D86, G, G1, G14, G3, G32, G34, M, M1, M12, M4, M41

• Announcing the Bankers’ Acceptance Purchase Facility: a COVID‑19 event study

  Staff Analytical Note 2020-23 Rohan Arora, Sermin Gungor, Kaetlynd McRae, Jonathan Witmer

  The Bank of Canada launched the Bankers’ Acceptance Purchase Facility (BAPF) to ensure that the bankers’ acceptance (BA) market could continue to function well during the financial crisis induced by the COVID‑19 pandemic. We review the impact that the announcement of this facility had on BA yields in the secondary market. We find that BA yield spreads declined by 15 basis points on the day of the announcement and by up to 70 basis points over a longer period. Using an econometric framework, we quantify the effect of the announcement and confirm early assertions presented in the Bank’s 2020 Financial System Review.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• Canadian stock market since COVID‑19: Why a V-shaped price recovery?

  Staff Analytical Note 2020-22 Jean-Sébastien Fontaine, Guillaume Ouellet Leblanc, Ryan Shotlander

  Between February 19 and March 23, 2020, the Canadian stock market plunged due to the severe economic impact of COVID-19. By the end of the summer, the stock market had already recovered a significant portion of its losses, leaving many asking if investors see the economy through rose-coloured glasses. Despite these concerns, we find that current market valuations for companies on the Toronto Stock Exchange align well, on average, with the declines in earning forecasts observed since the start of the year. We also find these market valuations are consistent with the discount rate returning to its pre-pandemic level.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Coronavirus disease (COVID-19), Financial markets JEL Code(s): G, G1, G12, G14

• On Causal Networks of Financial Firms: Structural Identification via Non-parametric Heteroskedasticity

  Staff Working Paper 2020-42 Ruben Hipp

  Various business interactions of banks create a network of hidden relationships, which cannot be directly inferred from the correlation of bank stock returns. Without causality, it remains unclear how policy interventions change the network. Thus, this paper aims to find the causal network as anticipated by investors.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets, Financial stability JEL Code(s): C, C1, C3, C32, C5, C58, L, L1, L14
• August 25, 2020

  Our COVID-19 response: Large-scale asset purchases

  Paul Beaudry

  The Bank of Canada has taken many actions to support Canadians since the COVID-19 pandemic struck. These include large-scale asset purchases—buying a substantial amount of government bonds and other financial assets. Our purchases serve two purposes. They help key financial markets work properly, and they can help increase spending in the economy. This leads to more employment and stronger economic growth.

  Content Type(s): Publications, The Economy, Plain and Simple Topic(s): Coronavirus disease (COVID-19), Debt management, Financial markets, Financial stability, Inflation and prices, Interest rates, Market structure and pricing, Monetary policy, Monetary policy transmission

• The Interplay of Financial Education, Financial Literacy, Financial Inclusion and Financial Stability: Any Lessons for the Current Big Tech Era?

  Staff Working Paper 2020-32 Nicole Jonker, Anneke Kosse

  The objective of this paper is twofold. First, we assess whether financial education might be a suitable tool to promote the financial inclusion opportunities that big techs provide. Second, we study how this potential financial inclusion could impact financial stability.

  Content Type(s): Staff research, Staff working papers Topic(s): Development economics, Digital currencies and fintech, Financial markets, Financial services, Financial stability JEL Code(s): D, D1, D14, D9, D91, D92, G, G2, G21, G23, O, O1, O16