Meaning PREFERRED HABITAT THEORY: A biased expectations theory that believes the term structure reflects the expectation of the future path of interest rates as well as risk premium. The theory rejects the assertion that the risk premium must rise uniformly with maturity, but instead profits that to the extent that the demand for and supply of funds do not match for a given maturity range, some participants will shift to maturities showing the opposite imbalances, as long as they are compensated by an appropriate risk premium whose magnitude will reflect the extent of aversion to either price or reinvestment risk
More terms such as Preferred habitat theory in Dictionary P.
- Definition Passive:
- Examples Income or loss from business activities in which a person does not materially participate, such as a limited partnership preferred habitat theory definition.
- Definition Path-Dependent Option:
- Examples An option whose value depends on the sequence of prices of the underlying asset rather than just the final price of the asset preferred habitat theory explain.
- Definition Pickup:
- Examples The gain in yield that occurs when a block of bonds is swapped for another block of higher-coupon bonds preferred habitat theory what is.
- Definition Pecking-Order View (Of Capital Structure):
- Examples external financing transactions costs, especially those associated with the problem of adverse selection, create a dynamic environment in which firms have a preference, or pecking-order of preferred preferred habitat theory meaning.
- Definition Paired Shares:
- Examples Stock of two companies under the same management that are sold as one unit with one certificate preferred habitat theory abbreviation.
