DEFINITION of 'Market Segmentation Theory'
A modern theory pertaining to interest rates stipulating that there is no necessary relationship between long and shortterm interest rates. Furthermore, short and longterm markets fall into two different categories. Therefore, the yield curve is shaped according to the supply and demand of securities within each maturity length.
INVESTOPEDIA EXPLAINS 'Market Segmentation Theory'
Also called the "Segmented Markets Theory", this idea states that most investors have set preferences regarding the length of maturities that they will invest in. Market segmentation theory maintains that the buyers and sellers in each of the different maturity lengths cannot be easily substituted for each other. An offshoot to this theory is that if an investor chooses to invest outside their term of preference, they must be compensated for taking on that additional risk. This is known as the Preferred Habitat Theory.

Market Segmentation
A marketing term referring to the aggregating of prospective ... 
Liquidity Preference Theory
The idea that investors demand a premium for securities with ... 
Realized Yield
The actual amount of return earned on a security investment over ... 
Market
1. A medium that allows buyers and sellers of a specific good ... 
Preferred Habitat Theory
A term structure theory suggesting that different bond investors ... 
Biased Expectations Theory
A theory that the future value of interest rates is equal to ...

Where did market segmentation theory come from?
The first official proposal of market segmentation theory (MST) appeared in J.M. Culbertson's "The Term Structure of Interest ... Read Full Answer >> 
What does market segmentation theory assume about interest rates?
Market segmentation theory states there is no relationship between the markets for bonds of different maturity lengths. MST ... Read Full Answer >> 
What is the difference between the cost of capital and the discount rate?
The cost of capital refers to the actual cost of financing business activity through either debt or equity capital. The discount ... Read Full Answer >> 
How does the market share of a few companies affect the HerfindahlHirschman Index ...
In economics and commercial law, the HerfindahlHirschman Index (HHI) is a widely used measure that indicates the amount ... Read Full Answer >> 
What does the rule of 70 indicate about a country's future economic growth?
The rule of 70 could be used to indicate the approximate number of years that it would take a company's economic growth to ... Read Full Answer >> 
How is the rule of 70 related to the growth rate of a variable?
The rule of 70 is related to the growth rate of a variable because it uses the growth rate in its approximation of the number ... Read Full Answer >>

Investing Basics
The Five Biggest Stock Market Myths
Stocks that go down must come up, right? Wrong. We bust this myth and four other common market misconceptions. 
Economics
Forces Behind Interest Rates
Get a deeper understanding of the importance of interest rates and what makes them change. 
Investing Basics
How Interest Rates Affect The Stock Market
Whether you're buying lunch, a home or a stock, you're influenced by interest rates. 
Investing Basics
What Investors Should Know About Interest Rates
Understanding interest rates helps you answer the fundamental question of where to put your money. 
Fundamental Analysis
DoItYourself Analyst Predictions
Regular investors can build their own financial models using the mosaic theory. 
Active Trading
Modern Portfolio Theory: Why It's Still Hip
See why investors today still follow this old set of principles that reduce risk and increase returns through diversification. 
Investing
Making Sense Of Market Anomalies
Stocks sometimes thwart the efficient market theory by showing some very unusual patterns. 
Investing Basics
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. 
Bonds & Fixed Income
Advanced Bond Concepts
Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration. 
Fundamental Analysis
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.