G12 - Asset Pricing; Trading volume; Bond Interest Rates

• What Explains the Recent Increase in Canadian Corporate Bond Spreads

  Staff Analytical Note 2017-2 Maxime Leboeuf, James Pinnington

  The spread between the yield of a corporate bond and the yield of a similar Government of Canada bond reflects compensation for possible default by the issuing firm and compensation for additional risks beyond default.

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

• Repo Market Functioning when the Interest Rate Is Low or Negative

  Staff Discussion Paper 2017-3 Jean-Sébastien Fontaine, James Hately, Adrian Walton

  This paper investigates how a low or negative overnight interest rate might affect the Canadian repo markets. The main conclusion is that the repo market for general collateral will continue to function effectively.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Financial markets, Interest rates, Market structure and pricing JEL Code(s): D, D4, G, G1, G10, G12

• What Fed Funds Futures Tell Us About Monetary Policy Uncertainty

  Staff Working Paper 2016-61 Jean-Sébastien Fontaine

  The uncertainty around future changes to the Federal Reserve target rate varies over time. In our results, the main driver of uncertainty is a “path” factor signaling information about future policy actions, which is filtered from federal funds futures data.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13

• Time-Varying Crash Risk: The Role of Stock Market Liquidity

  Staff Working Paper 2016-35 Peter Christoffersen, Bruno Feunou, Yoontae Jeon, Chayawat Ornthanalai

  We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods, Financial stability JEL Code(s): G, G0, G01, G1, G12

• Global Macro Risks in Currency Excess Returns

  Staff Working Paper 2016-32 Kimberly Berg, Nelson C. Mark

  We study a cross section of carry-trade-generated currency excess returns in terms of their exposure to global fundamental macroeconomic risk.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Exchange rates, Interest rates JEL Code(s): E, E2, E21, E4, E43, F, F3, F31, G, G1, G12

• 9 June 2016 Securities Financing and Bond Market Liquidity

  Financial System Review - June 2016 Jean-Sébastien Fontaine, Corey Garriott, Kyle Gray

  This report investigates how the markets for repurchase agreements and securities-lending agreements support the liquidity of Canadian bond markets. It also discusses how recent regulatory changes, as well as low interest rates and settlement failures, are potentially affecting securities-financing markets and, as a result, bond market liquidity.

  Content Type(s): Publications, Financial System Review Article Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G12, G2

• Tractable Term-Structure Models and the Zero Lower Bound

  Staff Working Paper 2015-46 Anh Le, Bruno Feunou, Christian Lundblad, Jean-Sébastien Fontaine

  We greatly expand the space of tractable term-structure models. We consider one example that combines positive yields with rich volatility and correlation dynamics. Bond prices are expressed in closed form and estimation is straightforward.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Interest rates, International financial markets, International topics, Transmission of monetary policy, Uncertainty and monetary policy JEL Code(s): G, G1, G12

• Option Valuation with Observable Volatility and Jump Dynamics

  Staff Working Paper 2015-39 Peter Christoffersen, Bruno Feunou, Yoontae Jeon

  Under very general conditions, the total quadratic variation of a jump-diffusion process can be decomposed into diffusive volatility and squared jump variation. We use this result to develop a new option valuation model in which the underlying asset price exhibits volatility and jump intensity dynamics.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing JEL Code(s): G, G1, G12

• Downside Variance Risk Premium

  Staff Working Paper 2015-36 Bruno Feunou, Mohammad R. Jahan-Parvar, Cédric Okou

  We decompose the variance risk premium into upside and downside variance risk premia. These components reflect market compensation for changes in good and bad uncertainties. Their difference is a measure of the skewness risk premium (SRP), which captures asymmetric views on favorable versus undesirable risks.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing JEL Code(s): G, G1, G12

• Testing for the Diffusion Matrix in a Continuous-Time Markov Process Model with Applications to the Term Structure of Interest Rates

  Staff Working Paper 2015-17 Fuchun Li

  The author proposes a test for the parametric specification of each component in the diffusion matrix of a d-dimensional diffusion process. Overall, d (d-1)/2 test statistics are constructed for the off-diagonal components, while d test statistics are constructed for the main diagonal components.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods, Interest rates JEL Code(s): C, C1, C12, C14, E, E1, E17, E4, E43, G, G1, G12, G2, G20