The Maturity of Debt Issues and Predictable Variation in Bond Returns

45 Pages Posted: 15 Aug 2001 Last revised: 13 Jan 2009

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Robin M. Greenwood

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: 2002

Abstract

The maturity of new debt issues predicts excess bond returns. When the share of longterm debt issues in total debt issues is high, future excess bond returns are low. This predictive power comes in two parts. First, inflation, the real short-term rate, and the term spread predict excess bond returns. Second, these same variables explain the long-term share, and together account for much of its own ability to predict excess bond returns. The results are consistent with survey evidence that firms use debt market conditions in an effort to determine the lowest-cost maturity at which to borrow.

Note: Previously titled "Do Firms Borrow at the Lowest-Cost Maturity? The Long-Term Share in Debt Issues and Predictable Variation in Bond Returns"

Keywords: Bond, Maturity, Return, Corporate, Debt, Issue, Predictability, Cost of Capital

JEL Classification: G32, G12, E43

Suggested Citation

Baker, Malcolm P. and Greenwood, Robin M. and Wurgler, Jeffrey A., The Maturity of Debt Issues and Predictable Variation in Bond Returns (2002). Available at SSRN: https://ssrn.com/abstract=279518 or http://dx.doi.org/10.2139/ssrn.279518

Malcolm P. Baker (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robin M. Greenwood

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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