The Maturity Premium

Maria Chaderina; Patrick Weiß; Josef Zechner

doi:10.1016/j.jfineco.2021.07.008

The Maturity Premium

Maria Chaderina, Patrick Weiß, Josef Zechner

Publikation: Wissenschaftliche Fachzeitschrift › Originalbeitrag in Fachzeitschrift › Begutachtung

Abstract

We show that firms with longer debt maturities earn risk premia not explained by unconditional factors. Embedding dynamic capital structure choices in an asset-pricing framework where the market price of risk evolves with the business cycle, we find that firms with long-term debt exhibit more countercyclical leverage. The induced covariance between betas and the market price of risk generates a maturity premium similar in size to our empirical estimate of 0.21% per month. We also provide direct evidence for the model mechanism and confirm that the maturity premium is consistent with observed leverage dynamics of long- and short-maturity firms.

Originalsprache	Englisch
Seiten (von - bis)	670-694
Fachzeitschrift	Journal of Financial Economics
Jahrgang	144
Ausgabenummer	2
DOIs	https://doi.org/10.1016/j.jfineco.2021.07.008
Publikationsstatus	Veröffentlicht - Mai 2022

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10.1016/j.jfineco.2021.07.008

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abstract = "We show that firms with longer debt maturities earn risk premia not explained by unconditional factors. Embedding dynamic capital structure choices in an asset-pricing framework where the market price of risk evolves with the business cycle, we find that firms with long-term debt exhibit more countercyclical leverage. The induced covariance between betas and the market price of risk generates a maturity premium similar in size to our empirical estimate of 0.21% per month. We also provide direct evidence for the model mechanism and confirm that the maturity premium is consistent with observed leverage dynamics of long- and short-maturity firms.",

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AB - We show that firms with longer debt maturities earn risk premia not explained by unconditional factors. Embedding dynamic capital structure choices in an asset-pricing framework where the market price of risk evolves with the business cycle, we find that firms with long-term debt exhibit more countercyclical leverage. The induced covariance between betas and the market price of risk generates a maturity premium similar in size to our empirical estimate of 0.21% per month. We also provide direct evidence for the model mechanism and confirm that the maturity premium is consistent with observed leverage dynamics of long- and short-maturity firms.

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