The ____ theory suggests that although investors and borrowers may normally concentrate on a particular natural maturity market, certain events may cause them to wander from it.
A)pure expectations
B)liquidity premium
C)segmented markets
D)preferred habitat

Question

Quizplus · Accepted Answer

The preferred habitat theory suggests that investors and borrowers have a preferred maturity segment but may choose to operate in a different segment if the conditions are favorable or if certain events prompt them to do so. This theory combines elements of the segmented markets theory, which posits that financial markets are divided into segments by the maturity of securities, and the liquidity premium theory, which suggests that longer maturities carry a premium.

The ____ Theory Suggests That Although Investors and Borrowers May