Financial markets

• Financial Distress and Hedging: Evidence from Canadian Oil Firms

  Staff Discussion Paper 2019-4 Kun Mo, Farrukh Suvankulov, Sophie Griffiths

  The paper explores the link between financial distress and the commodity price hedging behaviour of Canadian oil firms.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Financial markets, Firm dynamics JEL Code(s): G, G3, G32, Q, Q4, Q40

• Could Canadian Bond Funds Add Stress to the Financial System?

  Staff Analytical Note 2019-9 Rohan Arora, Guillaume Bédard-Pagé, Guillaume Ouellet Leblanc, Ryan Shotlander

  We create a hypothetical scenario to study the role bond funds play in intensifying shocks to the financial system. Using data from 2018 and 2007, we find that bond funds play a larger role now than they did in the past.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• Bond Funds and Fixed-Income Market Liquidity: A Stress-Testing Approach

  Technical Report No. 115 Rohan Arora, Guillaume Bédard-Pagé, Guillaume Ouellet Leblanc, Ryan Shotlander

  This report provides a detailed technical description of a stress test model for investment funds called Ceto.

  Content Type(s): Technical Reports Topic(s): Economic models, Financial Institutions, Financial markets, Financial stability JEL Code(s): G, G1, G12, G14, G2, G20, G23

• Non-Bank Financial Intermediation in Canada: An Update

  Staff Discussion Paper 2019-2 Guillaume Bédard-Pagé

  Non-bank financing provides an important funding source for the economy and is a valuable alternative to traditional banking. It helps enhance the efficiency and resiliency of the financial system while giving customers more choices for their financial services. Unlike banking, it is not prudentially regulated.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Financial Institutions, Financial markets, Financial stability JEL Code(s): G, G0, G01, G2, G20, G23

• Do Survey Expectations of Stock Returns Reflect Risk Adjustments?

  Staff Working Paper 2019-11 Klaus Adam, Dmitry Matveev, Stefan Nagel

  Motivated by the observation that survey expectations of stock returns are inconsistent with rational return expectations under real-world probabilities, we investigate whether alternative expectations hypotheses entertained in the literature on asset pricing are consistent with the survey evidence.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Economic models, Financial markets JEL Code(s): G, G1, G10, G12

• Liquidity Management of Canadian Corporate Bond Mutual Funds: A Machine Learning Approach

  Staff Analytical Note 2019-7 Rohan Arora, Chen Fan, Guillaume Ouellet Leblanc

  How do Canadian corporate bond mutual funds meet investor redemptions? We revisit this question using decision tree and random forest algorithms. We uncover new patterns in the decisions made by fund managers: the interaction between a larger, market-wide term spread and relatively less-liquid holdings increases the probability that a fund manager will sell less-liquid assets (corporate bonds) to meet redemptions. The evidence also shows that machine learning algorithms can extract new knowledge that is not apparent using a classical linear modelling approach.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial markets, Financial stability JEL Code(s): G, G1, G2, G20, G23

• Corporate Debt Composition and Business Cycles

  Staff Working Paper 2019-5 Jelena Zivanovic

  Based on empirical evidence, I propose a dynamic stochastic general equilibrium model with two financial sectors to analyze the role of corporate debt composition (bank versus bond financing) in the transmission of economic shocks.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Financial Institutions, Financial markets, Recent economic and financial developments JEL Code(s): E, E3, E32, E4, E44

• Price Caps in Canadian Bond Borrowing Markets

  Staff Analytical Note 2019-2 Léanne Berger-Soucy, Jean-Sébastien Fontaine, Adrian Walton

  Price controls, or caps, can lead to shortages, as 1970’s gasoline price controls illustrate. One million trades show that the market for borrowing bonds in Canada has an implicit price cap: traders are willing to pay no more than the overnight interest rate to borrow a bond. This suggests the probability of a shortage increases when interest rates are very low.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial markets JEL Code(s): G, G1, G10, G12

• The Secular Decline of Forecasted Interest Rates

  Staff Analytical Note 2019-1 Bruno Feunou, Jean-Sébastien Fontaine

  Canadian interest rates show a secular decline since the 1980s. Long-term survey-based forecasts of interest rates also declined, but less so and were more gradual. Our model-based estimates show an endpoint shifting over time in three phases: a decline between 1990 and 1995, a period of stability between 1996 and 2007, and a further decline since 2008. The current endpoint estimate remains clouded with uncertainty; this is an active area of research.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G1, G12

• Alternative Futures for Government of Canada Debt Management

  Staff Discussion Paper 2018-15 Corey Garriott, Sophie Lefebvre, Guillaume Nolin, Francisco Rivadeneyra, Adrian Walton

  This paper presents four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile. We argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds and thus lowering their cost at issuance.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Debt Management, Financial markets, Market structure and pricing JEL Code(s): G, G1, G12, G2, G24, H, H6, H63