________ cannot explain the empirical fact that interest rates on bonds of different maturities tend to move together.
A) The market segmentation theory
B) The expectations theory
C) The liquidity premium theory
D) Both A and B of the above
E) Both A and C of the above

Question

Quizplus · Accepted Answer

The market segmentation theory suggests that the bond market is segmented on the basis of maturity, with investors having specific maturity preferences. This theory cannot explain why interest rates on bonds of different maturities tend to move together, as it implies that different segments of the bond market operate independently.

________ Cannot Explain the Empirical Fact That Interest Rates on Bonds