Expectations Theory


Expectations Theory
A theory proposing that long-term interest rates can act as a predictor of future short-term interest rates.

Empirical evidence suggests this hypothesis often overstates future short-term interest rates. This over-estimation may be due to the higher risk premium associated with holding a long-term debt security whose yield is more uncertain due to potential changes in interest rates.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Expectations theory of forward exchange rates — A theory of foreign exchange rates that holds that the expected future spot foreign exchange rate t periods in the future equals the current t period forward exchange rate. The New York Times Financial Glossary …   Financial and business terms

  • expectations theory of forward exchange rates — A 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. Bloomberg Financial Dictionary …   Financial and business terms

  • rational expectations theory — racionaliųjų lūkesčių teorija statusas Aprobuotas sritis Ekonomika apibrėžtis Teorija, grindžiama prielaida, kad rinkos dalyviai, numatydami rinkos procesus ar ekonominius rodiklius, vadovaujasi logika ir įvertina visą jiems prieinamą informaciją …   Lithuanian dictionary (lietuvių žodynas)

  • Local expectations theory — A form of the pure expectations theory which suggests that the returns on bonds of different maturities will be the same over a short term investment horizon. The New York Times Financial Glossary …   Financial and business terms

  • local expectations theory — A form of the pure expectations theory that suggests that the returns on bonds of different maturities ( maturity) will be the same over a short term investment horizon. Bloomberg Financial Dictionary …   Financial and business terms

  • adaptive expectations theory — adaptyviųjų lūkesčių teorija statusas Aprobuotas sritis Ekonomika apibrėžtis Lūkesčių vertinimo teorija, grindžiama prielaida, kad rinkos dalyviai, numatydami rinkos procesus ir ekonominius rodiklius, remiasi tik praeities informacija (ekonominių …   Lithuanian dictionary (lietuvių žodynas)

  • Biased Expectations Theory — A theory that the future value of interest rates is equal to the summation of market expectations. Proponents of the biased expectation theory argue that the shape of the yield curve is created by ignoring systematic factors and that the term… …   Investment dictionary

  • Rational Expectations Theory — An economic idea that the people in the economy make choices based on their rational outlook, available information and past experiences. The theory suggests that the current expectations in the economy are equivalent to what the future state of… …   Investment dictionary

  • Pure expectations theory — A theory that asserts that the forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the markets expectations of future short term rates. For example, an increasing sloping term… …   Financial and business terms

  • pure expectations theory — A theory that asserts that forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the market s expectations of future short term rates. For example, an increasing slope to the term… …   Financial and business terms


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