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Pure expectations theory

Definition:

A theory that asserts that forward rates exclusively represent the expected future rates. In other words, the entire term structure reflects the market's expectations of future short-term rates. For example, an increasing slope to the term structure implies increasing short-term interest rates. Related: Biased expectations heories.

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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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