A common version of the expectations hypothesis holds that forward interest rates are unbiased estimates of expected
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A common version of the expectations hypothesis holds that forward interest rates are unbiased estimates of expected future interest rates. However, there are good reasons to believe that forward rates differ from expected short rates because of a risk premium known as a liquidity premium. A positive liquidity premium can cause the yield curve to slope upward even if no increase in short rates is anticipated. P-639
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ISE Investments
ISBN: 9781266085963
13th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
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