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Rational expectations |
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Rational 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.Rational expectations 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. 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. 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. 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. 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 SuggestionsExpectations theory of forward exchange ratesUnbiased expectations hypothesis |
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