The Maturity Premium

59 Pages Posted: 13 Nov 2018 Last revised: 21 Apr 2021

See all articles by Maria Chaderina

Maria Chaderina

University of Oregon - Lundquist College of Business

Patrick Weiss

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics

Josef Zechner

Vienna University of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 18, 2021

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.

Keywords: maturity, value premium, debt overhang, cross-section of stock returns, CAPM

JEL Classification: G12, G32, G33

Suggested Citation

Chaderina, Maria and Weiss, Patrick and Zechner, Josef, The Maturity Premium (April 18, 2021). Available at SSRN: https://ssrn.com/abstract=3283771 or http://dx.doi.org/10.2139/ssrn.3283771

Maria Chaderina

University of Oregon - Lundquist College of Business ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Patrick Weiss (Contact Author)

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics ( email )

Welthandelsplatz 1
Vienna, 1020
Austria
+43 1 313 36 / 5996 (Phone)

HOME PAGE: http://https://sites.google.com/view/patrick-weiss

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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