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Are economically significant bond returns explained by corporate news? An examination of the German corporate bond market

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Abstract

We examine the association between bond prices and corporate news for firms listed in the prime segment of the German stock market. Focusing on economically significant bond returns, we provide an overview of the various news categories that influence bond investors in their assessment of an issuer’s default risk. This approach allows us to draw direct comparisons with respect to size and time of impact. We find that (1) there is a strong relationship between economically significant changes in bond prices and corporate news, (2) earnings announcements and financing issues prevail in our analyses, and (3) on average, around half the significant bond returns occur within a period of one day before to one day after an event. This proportion is considerably small compared to the findings of related studies on the stock market. We also carry out a conventional event study analysis as an alternative approach to our main analysis.

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Notes

  1. For an extensive review of event studies on diverse markets see, Corrado (2011). Cichello and Lamdin (2006) and Kothari and Warner (2007), for instance, provide an overview of event studies focusing on stock markets.

  2. Seminal studies considering the impact of single-event categories on bond prices include Handjinicolaou and Kalay (1984); Warga and Welch 1993) and Billett et al. (2004).

  3. For more detail on the Weka data-mining software, see Hall et al. (2009).

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Acknowledgments

The authors thank Frank Schmielewski and the team of RC Banken GmbH & Co. KG for the kind provision of data, as well as Prof. Dr. Heinrich Degenhart, Prof. Dr. Andrea Schertler, Prof. Dr. Thomas Wein, Sven Bockelmann, Moritz Denkewitz, Inge Nehring, Sebastian Neuring, and Saskia Störch. Any errors found in this text are entirely imputable to the authors.

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  1. Leuphana University of Lüneburg, Scharnhorststrasse 1, 21335, Lüneburg, Germany

    Steve Janner & Daniel Schmidt

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  1. Steve Janner
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  2. Daniel Schmidt
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Correspondence to Steve Janner.

Appendix

Appendix

Table 12 Overview of the event categories
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Janner, S., Schmidt, D. Are economically significant bond returns explained by corporate news? An examination of the German corporate bond market. Financ Mark Portf Manag 29, 271–298 (2015). https://doi.org/10.1007/s11408-015-0253-5

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