The Maturity Premium

Maria Chaderina; Patrick Weiß; Josef Zechner

doi:https://doi.org/10.1016/j.jfineco.2021.07.008

The Maturity Premium

Maria Chaderina, Patrick Weiß, Josef Zechner

Publication: Scientific journal › Journal article › peer-review

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.

Original language	English
Pages (from-to)	670-694
Journal	Journal of Financial Economics
Volume	144
Issue number	2
DOIs	https://doi.org/10.1016/j.jfineco.2021.07.008
Publication status	Published - May 2022

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title = "The Maturity Premium",

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.",

author = "Maria Chaderina and Patrick Wei{\ss} and Josef Zechner",

year = "2022",

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doi = "https://doi.org/10.1016/j.jfineco.2021.07.008",

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journal = "Journal of Financial Economics",

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AU - Zechner, Josef

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N2 - 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.

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.

U2 - https://doi.org/10.1016/j.jfineco.2021.07.008

DO - https://doi.org/10.1016/j.jfineco.2021.07.008

M3 - Journal article

VL - 144

SP - 670

EP - 694

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

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ER -