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Expectations hypothesis theories |
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Expectations hypothesis theoriesTheories of the term structure of interest rates, which include the pure expectations theory; the liquidity theory of the term structure, and the preferred habitat theory. These theories hold that each forward rate equals the expected future interest rate for the relevant period. These three theories differ, however, on whether other factors also affect forward rates, and how.Expectations hypothesis theories Similar MatchesLocal expectations theoryLocal expectations theoryA form of the pure expectations theory that suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon. Homogeneous expectations assumptionHomogeneous expectations assumptionAn assumption of Markowitz portfolio construction that investors have the same expectations with respect to the inputs that are used to derive efficient portfolios: asset returns, variances, and covariances. Return to maturity expectationsReturn to maturity expectationsA variant of pure expectations theory that suggests that the return an investor will realize by rolling over short-term bonds to some investment horizon will be the same as holding a zero-coupon bond with a maturity that is the same as that investment horizon. Unbiased expectations hypothesisUnbiased expectations hypothesisTheory that forward exchange rates are unbiased predictors of future spot rates. See Forward parity. Local expectations hypothesis (LEH)Local expectations hypothesis (LEH)Theory that bonds similar in all aspects except maturity will have the same holding-period rate of return. Further SuggestionsExpectations theory of forward exchange ratesRational expectations |
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