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Local expectations theory |
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Local 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.Local expectations theory 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. 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. 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. 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. Further SuggestionsReturn to maturity expectationsHomogeneous expectations assumption |
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