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Topic
The Maturity Premium
Resource type
Authors/contributors
- Chaderina, Maria (Author)
- Weiss, Patrick (Author)
- Zechner, Josef (Author)
Title
The Maturity Premium
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.
Publication
Journal of Financial Economics
Volume
144
Issue
S0304405X21003329
Pages
670-694
Date
2022
Citation
Chaderina, M., Weiss, P., & Zechner, J. (2022). The Maturity Premium. Journal of Financial Economics, 144, 670–694.
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