The Maturity Premium

52 Pages Posted: 13 Nov 2018 Last revised: 16 Jan 2020

See all articles by Maria Chaderina

Maria Chaderina

University of Oregon - Lundquist College of Business

Patrick Weiss

Vienna Graduate School of Finance (VGSF)

Josef Zechner

Vienna University of Economics and Business

Date Written: January 15, 2020

Abstract

This paper shows that firms with longer debt maturities earn risk premia not explained by unconditional standard factor models. We develop a dynamic capital structure model and find that firms with long-term debt exhibit more countercyclical leverage, making them more highly levered in downturns, when the market price of risk is high. The induced covariance between risk exposure and the market price of risk generates a maturity premium which we estimate at 0.21% per month. Empirical results from a conditional CAPM as well as observed beta dynamics are consistent with the model. We also exploit exogenous variation of debt maturities at the onset of the financial crisis and find that firms with shorter debt maturities experienced a smaller increase in leverage during the crisis. Also, after an initial spike, the betas of short-maturity firms reverted to levels below those of long-maturity firms by the end of 2008.

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 (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=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 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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