The market segmentation and preferred habitat theories of term structure

Question

Quizplus · Accepted Answer

Market segmentation theory suggests that investors and borrowers prefer specific maturities and are not willing to depart from them regardless of yield, while preferred habitat theory acknowledges this preference but also recognizes that investors may be willing to extend or shorten their maturities if the yield is attractive enough. Market segmentation theory is now rare, and preferred habitat theory is widely accepted.

The Market Segmentation and Preferred Habitat Theories of Term Structure