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Risk structure of interest rates: an empirical analysis for Deutschemark‐denominated bonds

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  • Klaus Düllmann
  • Marliese Uhrig‐Homburg
  • Marc Windfuhr

Abstract

This paper empirically studies the risk structure of interest rates for Deutschemark‐denominated bonds. For this purpose, we estimate term structures of interest rates using the parsimonious fitting function of Nelson and Siegel (1987) for virtually risk free Government bonds and five different rating categories classified by Moody’s ratings (Aaa, Aa, A, Baa, Ba). The sample period covers the time interval from July 1990 to December 1996. We investigate the pricing errors resulting from our estimation procedure and analyse credit spreads over the term structure of Government bonds.

Suggested Citation

  • Klaus Düllmann & Marliese Uhrig‐Homburg & Marc Windfuhr, 2000. "Risk structure of interest rates: an empirical analysis for Deutschemark‐denominated bonds," European Financial Management, European Financial Management Association, vol. 6(3), pages 367-388, September.
    • Handle: RePEc:bla:eufman:v:6:y:2000:i:3:p:367-388
    DOI: 10.1111/1468-036X.00129
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    Cited by:

    1. Wolfgang Aussenegg & Lukas Goetz & Ranko Jelic, 2015. "Common Factors in the Performance of European Corporate Bonds – Evidence before and after the Financial Crisis," European Financial Management, European Financial Management Association, vol. 21(2), pages 265-308, March.
    2. Chebbi TAREK, 2008. "Rating And Other Factors Explaining The Corporate Credit Spread: Empirical Evidence From Tunisian Bond Market," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(4(6)_Wint).
    3. Fang, Victor & Muljono, Ronny, 2003. "An empirical analysis of the Australian dollar swap spreads," Pacific-Basin Finance Journal, Elsevier, vol. 11(2), pages 153-173, April.
    4. Annaert, Jan & Claes, Anouk G.P. & De Ceuster, Marc J.K. & Zhang, Hairui, 2013. "Estimating the spot rate curve using the Nelson–Siegel model," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 482-496.
    5. Brown, Alessio J. G. & Žarnić, Žiga, 2003. "Explaining the increased German credit spread: The role of supply factors," Kiel Advanced Studies Working Papers 412, Kiel Institute for the World Economy (IfW Kiel).
    6. Thomas Lagner & Dodozu Knyphausen‐Aufseß, 2012. "Rating Agencies as Gatekeepers to the Capital Market: Practical Implications of 40 Years of Research," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 21(3), pages 157-202, August.
    7. Perraudin, William & Taylor, Alex P., 2004. "On the consistency of ratings and bond market yields," Journal of Banking & Finance, Elsevier, vol. 28(11), pages 2769-2788, November.

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