Biased Expectations Theory

Dictionary Says

Definition of '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 structure of interest rates is solely derived by the market's current expectations. 
Investopedia Says

Investopedia explains 'Biased Expectations Theory'

Two common biased expectation theories are the liquidity preference theory and the preferred habitat theory. The liquidity preference theory suggests that long-term bonds contain a risk premium and the preferred habitat theory suggests that the supply and demand for different maturity securities are not uniform and therefore there is a difference risk premium for each security.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Interest Rate

    The amount ...
  2. Yield Curve

    A line that ...
  3. Flat Yield Curve

    A yield curve in ...
  4. Inverted Yield Curve

    An interest rate ...
  5. Systematic Risk

    The risk ...
  6. Preferred Habitat Theory

    A term structure ...
  7. Liquidity Preference Theory

    The idea that ...
  8. Agency Bond

    A bond issued by ...
  9. Convertible Arbitrage

    An investing ...
  10. Liquidation

    1. When a ...

Articles Of Interest

  1. The Impact Of An Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  2. Sector Rotation: The Essentials

    We look at how the market signals impending economic cycles and sector performance during each stage.
  3. Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  4. This Is Your Brain On Stocks

    Find out how the human mind can hurt investors' portfolios.
  5. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  6. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  7. 5 Popular Portfolio Types

    Learning how to build these portfolios will increase your investing confidence and give you financial control.
  8. How To Invest When You're Deep In Debt

    Debt is one of the biggest obstacles that prevents people from investing - but it shouldn't be.
  9. Finding Your Investing Comfort Zone

    Choosing the right investments for you is the best way to feel comfortable with your portfolio.
  10. Investors: Rely On Your Gut

    Find out how your personality and natural instincts can direct your investment choices.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center