The fact that yields on short-term securities fluctuate more over the course of the business cycle supports which theory of the term structure?
A) Pure expectations
B) Preferred habitat
C) Supply and demand
D) Liquidity premium

Question

Quizplus · Accepted Answer

The pure expectations theory suggests that the shape of the yield curve reflects investor expectations about future interest rates. Short-term yields fluctuate more because they are more sensitive to changes in monetary policy and economic conditions, which aligns with the expectations theory.

The Fact That Yields on Short-Term Securities Fluctuate More Over