A new approach to asset pricing models: Term structure of leverage and re-financing risk

In addition to testing the existence of a positive relationship between leverage and equity returns, as suggested in the finance literature, the study also identifies risk factors affecting the returns of portfolios created based on leverage maturity structure and refinancing intensity. The aim of the study is to provide new information on leverage- related risk factors in share returns and to demonstrate the importance of debt maturities and refinancing in understanding leverage effects in asset pricing. The study is a pioneering study in the literature by examining the extent to which portfolio returns on leverage maturity structure are affected by risk factors by creating an international portfolio. The results of OLS and WLS regression models explaining the relationship between share returns of companies in the main stock market indices of fragile eight countries and leverage and refinancing risk show that expected share returns decrease as the total leverage in financing increases, while increases in the level of short-term debt lead to a significant increase in expected returns. Model results prove that investors care about the maturity structure of leverage and expect high returns that cover the risk they incur in the use of short-term leverage. In the findings regarding the explanation of equal and value-weighted portfolio returns based on leverage (RLEV), refinancing intensity (RREFI), short-term leverage (RSTLEV) and long-term leverage (RLTLEV) with factor models, the FF6F factor applied to RLEV portfolio returns created through equal weighting. It has been determined that the model has the lowest asset pricing error and is superior to other models. This portfolio strengthens the model results by exhibiting a better risk-return performance than the market portfolio according to the Sharpe ratio, M2 performance criterion and Treynor Index results.