Respuesta :
The expectations theory of the term structure of interest rates states that the yields on financial assets of different maturities are related primarily by market expectations of future yields. The expectations theory has occupied a prominent place in both theoretical and policy debates at various times.
What is expectations theory ?
According to the term structure's expectations theory, the long-term interest rate is a weighted average of the current and anticipated short-term interest rates in the future. The long rate will equal the short rate if forecasts for future short rates are consistent (plus a constant risk premium).
- Expectations theory, market segmentation theory, and liquidity preference theory are the theories that make an effort to explain the term structure of interest rates. Due to the difficulty in observing the term structure in the market, spot and forward are calculated from the coupon curve.
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