Lucie Samson

The Beveridge Curve and regional disparities in Canada

The Beveridge curve establishes an inverse relationship between the unemployment rate and the vacancy rate. It has been documented and discussed at length by Blanchard and Diamond (1989) for the United States. The unemployment–vacancy relationships of the Canadian economy and its regions are considered. This analysis reveals some important distinctions in the behaviour of the regional Baveridge curves and some interesting similarities. At the aggregate level, the observations are not strikingly different from those of Blanchard and Diamond for the US economy.

Expected returns and economic risk in Canadian financial markets

This article estimates a linear factor model that links asset return fluctuations to: time-varying expected returns, to economic factors innovations and to a residual idiosyncratic risk. It considers bond returns together with returns on a number of portfolio of assets, grouped by sectors, traded on the Toronto Stock Exchange. The first part of the article identifies the number of latent variables necessary to explain the behaviour of these asset returns and concludes that two latent variables are needed. The second stage uses proxies for the underlying economic factors (state variables) and exploits the restrictions of the model to estimate conditional betas.

Comparing Consumption-Based Asset-Pricing Models

We make use of a recently developed method to estimate the intertemporal marginal rate of substitution consistent with the fluctuations of asset return data from the Toronto Stock Exchange. These estimates are then used to evaluate various parametric specifications for preferences often used in empirical studies of consumption and asset returns. In contrast to existing studies, we are able to perform a formal statistical comparison of these models. We consider six extensions of the usual power utility model, and we find that none can be said to be a demonstrable improvement on the standard model.

Finite-sample inferences about mean-standard deviation bounds for stochastic discount factors

Abstract Using Bayesian methods of inference, we develop a procedure for evaluating the finite-sample uncertainty about the estimated Hansen-Jagannathan bounds for the mean and standard deviation of stochastic discount factors.

Asset pricing, size and North American stock market integration

In this article, the restrictions imposed on excess returns by a latent variable model and an observed variable model are tested on stock market data from Canada and the United States. These two economies are highly integrated at the trade and production levels and it is to be expected that this is reflected in returns determination. The proposed latent variable model implies that all excess returns should move proportionately if assets are perfectly integrated. In our empirical analysis, data is disaggregated into ten size portfolios for each country. The restriction that all portfolios are governed by one single latent variable is rejected over the 1962–2004 sample period. It is established that this rejection is due to the presence of the smaller size portfolios. However, it is observed that Canada–US stock market integration has increased for small firms in more recent years. Financial and economic contributing risk factors are also identified.

Preferences and observed risk premia: an empirical analysis

The fundamental prediction of the Consumption-based Capital Asset Pricing Model (CCAPM) relates asset returns to their covariance with the intertemporal marginal rate of substitution (IMRS). With utility subjected to constant relative risk aversion, the IMRS is characterized by only one economic variable namely, consumption growth. One explanation for the disappointing empirical performance of the CCAPM model may be that the constant relative risk aversion specification is too restrictive. In this article we consider alternative specifications and compare their empirical performance with the reference model using Canadian data.

Bayesian Estimation of Stochastic Discount Factors

This article provides a Bayesian method of estimating the marginal posterior distributions for stochastic discount factors associated with observed asset returns. These estimates can be used to provide measures of fit for asset pricing models and to identify broad features of the characteristics that should be explained. These measures of fit can be used to supplement model evaluation exercises based on L. P. Hansen-R. Jagannathan bounds.

Fluctuations in employment growth: National or sector-specific disturbances?

Abstract This paper studies the fluctuations in employment growth of eight industrialized countries across nine sectors of production with the help of a statistical model combined with a more traditional regression analysis. The main finding is that both sector-specific and aggregate disturbances have played an important role in accounting for these employment fluctuations over the 1968–85 period. Moreover, the restriction that monetary policy has a similar impact on all sectors of production within each country is not rejected by the data when it is tested simultaneously for all countries. When the restriction is imposed on a country-by-country basis, it is rejected by only one country, Sweden, for which a broader monetary aggregate was used.

Size and stock market integration: a study of Canadian firms

In this article the restrictions imposed on excess returns by a dynamic optimization model are tested on stock market data from the Toronto Stock Exchange (TSE), from which ten size-portfolios have been formed. The model implies that all excess returns should move proportionately if assets are perfectly integrated. The restriction that all size portfolios are governed by one single latent variable is rejected over the sample period 1961–2002. It is established that this rejection is due to the presence of the smallest size portfolio, especially during the second half of the sample period. The uncertainties of the late 1980s and 1990s appear to require the presence of a second latent variable. No definite conclusions can be drawn regarding these sources of risk even if the return on the market portfolio and exchange rate fluctuations play an important role.

Excess returns determination: Empirical evidence from Canada

Abstract In an economy where agents are assumed to be risk averse, a risky asset will have to pay off a premium in order to be willingly held. What contributes to the risk associated with a given asset is therefore an important question since it will determine the excess return offered by that asset. In this paper, we look at the behavior of asset prices in Canada from firms continuously listed on the Toronto Stock Exchange between 1963:1 and 1988:4. To do so, we use the broader class of nonexpected utility functions generally attributed to Epstein and Zin (1989) and Weil (1988). The results obtained are generally favorable to the type of model proposed, even if they remain fairly imprecise and sensitive to the choice of instruments.