According to the liquidity premium theory of interest rates, ...
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Finance
According to the liquidity premium theory of interest rates,
| long-term spot rates are totally unrelated to expectations of future short-term rates. | ||
| the term structure must always be upward sloping. | ||
| investors prefer certain maturities and will not normally switch out of those maturities. | ||
| long-term spot rates are higher than the average of current and expected future short-term rates. | ||
| investors are indifferent between different maturities if the long-term spot rates are equal to the average of current and expected future short-term rates. |
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