The Asset Durability Premium

68 Pages Posted: 2 Dec 2020

See all articles by Kai Li

Kai Li

Peking University HSBC Business School

Chi-Yang Tsou

University of Manchester; University of Manchester - Alliance Manchester Business School

Date Written: October 18, 2020


This paper studies how the durability of assets affects the cross-section of stock returns. More durable assets incur lowers frictionless user costs but are more "expensive", in the sense that they need more down payments making them hard to finance. In recessions, firms become more financially constrained and prefer "cheaper" less durable assets. As a result, the price of less durable assets is less procyclical and therefore less risky than that of durable assets. We provide strong empirical evidence to support this prediction. Among financially constrained stocks, firms with higher asset durability earn average returns about 5% higher than firms with lower asset durability. We develop a general equilibrium model with heterogeneous firms and collateral constraints to quantitatively account for such a positive asset durability premium.

Keywords: Durability; financial constraints; collateral, cross-section of stock returns

JEL Classification: E2, E3, G12

Suggested Citation

Li, Kai and Tsou, Chi-Yang and Tsou, Chi-Yang, The Asset Durability Premium (October 18, 2020). Available at SSRN: or

Kai Li (Contact Author)

Peking University HSBC Business School ( email )

+86 755 26032023 (Phone)


Chi-Yang Tsou

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

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