What is EXPECTATIONS THEORY?

A theory of INTEREST RATES indicating that the expectations of investors influence the TERM STRUCTURE of rates. Thus, if investors expect future rates will be higher than current rates, the YIELD CURVE will be upward sloping, and vice versa. Also known as MARKET EXPECTATIONS THEORY. See also LIQUIDITY PREFERENCE THEORY, MARKET SEGMENTATION THEORY.

More On This Topic



Link to This Definition
Did you find this definition of EXPECTATIONS THEORY helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary