G - Financial Economics

• Constrained Efficiency with Adverse Selection and Directed Search

  Staff Working Paper 2017-15 Mohammad Davoodalhosseini

  Constrained efficient allocation (CE) is characterized in a model of adverse selection and directed search (Guerrieri, Shimer, and Wright (2010)). CE is defined to be the allocation that maximizes welfare, the ex-ante utility of all agents, subject to the frictions of the environment.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Economic models, Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): D, D8, D82, D83, E, E2, E24, G, G1, J, J3, J31, J6, J64

• Strategic Complementarities and Money Market Fund Liquidity Management

  Staff Working Paper 2017-14 Jonathan Witmer

  Following the financial crisis, there has been increased regulatory focus on the management of liquidity in mutual funds and, specifically, whether funds hold enough liquidity to guard against the potential for investor runs.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial Institutions, Financial markets JEL Code(s): F, F3, F30, G, G0, G01, G1, G18, G2, G20

• 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

• The Costs of Point-of-Sale Payments in Canada

  Staff Discussion Paper 2017-4 Anneke Kosse, Heng Chen, Marie-Hélène Felt, Valéry Dongmo Jiongo, Kerry Nield, Angelika Welte

  This study provides insight into the costs of cash, debit card and credit card payments made at the point of sale in Canada in 2014. For each payment method, it examines the total resource costs, which capture the overall use of resources by society as a whole.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Bank notes, Financial Institutions, Payment clearing and settlement systems JEL Code(s): D, D1, D12, D2, D23, D24, E, E4, E41, E42, G, G2, G21, L, L2

• Small‐Sample Tests for Stock Return Predictability with Possibly Non‐Stationary Regressors and GARCH‐Type Effects

  Staff Working Paper 2017-10 Sermin Gungor, Richard Luger

  We develop a simulation-based procedure to test for stock return predictability with multiple regressors. The process governing the regressors is left completely free and the test procedure remains valid in small samples even in the presence of non-normalities and GARCH-type effects in the stock returns.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods, Financial markets JEL Code(s): C, C1, C12, C3, C32, G, G1, G14

• Banking Regulation and Market Making

  Staff Working Paper 2017-7 David A. Cimon, Corey Garriott

  We present a model of market makers subject to recent banking regulations: liquidity and capital constraints in the style of Basel III and a position limit in the style of the Volcker Rule.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial markets, Financial system regulation and policies, Market structure and pricing JEL Code(s): G, G1, G14, G2, G20, L, L1, L10

• 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

• Non-Bank Investors and Loan Renegotiations

  Staff Working Paper 2016-60 Teodora Paligorova, João Santos

  We document that the structure of syndicates affects loan renegotiations. Lead banks with large retained shares have positive effects on renegotiations. In contrast, more diverse syndicates deter renegotiations, but only for credit lines.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Financial Institutions, Financial system regulation and policies JEL Code(s): G, G2, G21, G23

• Equity Option-Implied Probability of Default and Equity Recovery Rate

  Staff Working Paper 2016-58 Bo Young Chang, Greg Orosi

  There is a close link between prices of equity options and the default probability of a firm. We show that in the presence of positive expected equity recovery, standard methods that assume zero equity recovery at default misestimate the option-implied default probability.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Financial markets, Market structure and pricing JEL Code(s): G, G1, G13, G3, G33