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EXPECTATIONS THEORY Definition & Legal Meaning

Definition & Citations:

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.

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