preferred habitat theory

preferred habitat theory
A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. The theory rejects the assertion that the risk premium must rise uniformly with maturity, but instead profits that to the extent that the demand for and supply of funds do not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances, as long as they are compensated by an appropriate risk premium whose magnitude will reflect the extent of aversion to either price or reinvestment risk. Bloomberg Financial Dictionary

Financial and business terms. 2012.

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  • Preferred Habitat Theory — A term structure theory suggesting that different bond investors prefer one maturity length over another and are only willing to buy bonds outside of their maturity preference if a risk premium for the maturity range is available. The theory also …   Investment dictionary

  • Preferred habitat theory — A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. However, the theory rejects the assertion that the risk premium must rise uniformly with maturity …   Financial and business terms

  • Market segmentation theory or preferred habitat theory — A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector. The New York Times Financial Glossary …   Financial and business terms

  • market segmentation theory or preferred habitat theory — A biased expectations theory that asserts that the shape of the yield curve is determined by the supply of and demand for securities within each maturity sector. Bloomberg Financial Dictionary …   Financial and business terms

  • 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… …   Investment dictionary

  • Market Segmentation Theory — A modern theory pertaining to interest rates stipulating that there is no necessary relationship between long and short term interest rates. Furthermore, short and long term markets fall into two different categories. Therefore, the yield curve… …   Investment dictionary

  • Habitat — For other uses of Habitat , see Habitat (disambiguation). The remaining fragmented habitats of the African Elephant …   Wikipedia

  • Yield curve — This article is about yield curves as used in finance. For the term s use in physics, see Yield curve (physics). Not to be confused with Yield curve spread – see Z spread. The US dollar yield curve as of February 9, 2005. The curve has a typical… …   Wikipedia

  • 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 hold that each forward rate equals the expected future… …   Financial and business terms

  • 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 hold that each forward rate equals the expected future… …   Financial and business terms

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