The Maturity Premium

48 Pages Posted: 13 Nov 2018 Last revised: 25 Nov 2018

See all articles by Maria Chaderina

Maria Chaderina

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics; Tepper Business School, CMU

Patrick Weiss

Vienna Graduate School of Finance (VGSF)

Josef Zechner

Vienna University of Economics and Business

Date Written: November 23, 2018

Abstract

We analyze asset-pricing implications of debt maturity. Firms with long debt maturities have weaker incentives to delever after negative shocks and therefore exhibit high leverage and high betas during downturns when the market price of risk is high. They also increase leverage less aggressively during booms. Thus, the betas of firms with longer debt maturities covary more with the market price of risk. As a result, they generate higher expected returns, controlling for average exposure to systematic risk. We demonstrate this in a model and document empirically a 0.21% monthly premium for buying long-maturity financed firms and selling those with shorter debt maturities.

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 (November 23, 2018). Available at SSRN: https://ssrn.com/abstract=3283771

Maria Chaderina

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

Welthandelsplatz 1
Vienna, 1020
Austria

HOME PAGE: http://https://sites.google.com/site/mariachaderina

Tepper Business School, CMU ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Patrick Weiss (Contact Author)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna 1020
Austria
+43 1 31336 5996 (Phone)

HOME PAGE: http://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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