Expectations hypothesis

Expectations Hypothesis
One basic theory of the term structure of interest rates is that short-term and long-term interest rates are linked by the expectations hypothesis.

EXPECTATIONS HYPOTHESIS - The theory that the shape of yield curves is determined by investors' collect...
EXPECTATIONS HYPOTHESIS THEORIES - Theories of the term structure of interest rates, which include the ...

Expectations hypothesis theories
Theories 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 ...

Local expectations hypothesis (LEH)
Theory that bonds similar in all aspects except maturity will have the same holding-period rate of return.

Unbiased expectations hypothesis
Theory that forward exchange rates are unbiased predictors of future spot rates. See Forward parity.
Unbiased predictor
A theory that spot prices at some future date will be equal to today's forward rates.

Rational expectations hypothesis A theory stating that people combine the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes.

Adaptive Expectations Hypothesis - The theory that people base their expectations of inflation on past inflation rates.

A futures exchange member who trades securities for his or her own account. Local expectations hypothesis (LEH)
Theory that bonds similar in all aspects except maturity will have the same holding-period rate of return.

The new classicals adopted John Muth's 'rational-expectations hypothesis' (see rational expectations). Muth argued that an economic model in which people's expectations differ from the outcomes predicted by the model itself is poorly formulated.

The simplest method of calculating the function P, and therefore the term structure of interest rates, is using the market expectations hypothesis.

Long term yields are also higher not just because of the liquidity premium, but also because of the risk premium added by the risk of default from holding a security over the long term. The market expectations hypothesis is combined with the ...

Related: Endogenous variable Expectations hypothesis theories Theories 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.

See also: Hypothesis, Forward rate, Banks, Term structure, Margin account