For investors, mismatch risk occurs when an investor chooses investments that are not suitable for their circumstance, risk tolerance, or means. For companies, mismatch risk arises when assets generating cash to cover liabilities do not have the same interest rates, maturity dates, and/or currencies.

What is mismatch concept?

Evolutionary mismatch, also known as mismatch theory or evolutionary trap, is a concept in evolutionary biology that refers to evolved traits that were once advantageous but became maladaptive due to changes in the environment.

What are the risks of not matching maturities?

Maturity mismatches can shed light on a company’s liquidity, as they show how it organizes the maturity of its assets and liabilities. They can also signify that the company is not using its assets efficiently, which could give rise to a squeeze in liquidity. Mismatches can take place in hedging as well.