Interest rates, stock returns and credit spreads: Evidence from German Eurobonds

Niklas Wagner*, Warren Hogan, Jonathan Batten

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


We investigate daily variations in credit spreads on investment-grade Deutschemark-denominated Eurobonds during the challenging 1994-1998 period. Empirical results, from a Longstaff and Schwartz (1995) two-factor regression, extended for correlated spread changes and heteroskedasticity, indicate strong persistence in spread changes. Consistent with theory and previous findings, changes in spreads are significantly negatively related to the term-structure level while, contrary to theory, the proxy for asset value does not yield a significant negative contribution. We even find a significant positive relation for Eurobonds with long maturity. Tentative interpretations are portfoliorebalancing activities or differing risk factor sensitivities on short- vs. long-maturity bonds.

Original languageEnglish
Pages (from-to)35-50
Number of pages16
JournalEconomic Notes
Issue number1
Publication statusPublished - Feb 2005


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