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Local expectations hypothesis (LEH) |
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Local expectations hypothesis (LEH)Theory that bonds similar in all aspects except maturity will have the same holding-period rate of return.Local expectations hypothesis (LEH) Similar MatchesRational expectationsRational expectationsThe idea that people rationally anticipate the future and respond today to what they see ahead. This concept was pioneered by Nobel Laureate, Robert E. Lucas, Jr. Expectations hypothesis theoriesExpectations 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 theory of forward exchange ratesExpectations theory of forward exchange ratesA theory of foreign exchange rates that states that the expected future spot foreign exchange rate t periods from now equals the current t-period forward exchange rate. 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. Local 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. Further SuggestionsReturn to maturity expectationsUnbiased expectations hypothesis |
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