What Is an Expectation Theory?
Also known as an expectancy theory, an expectation theory is a strategy that is used by investors to make predictions about the future performance of interest rates. Essentially, the expectations theory states that by evaluating current long-term interest rates, it is possible to determine the course of short-term interest rates. While there are a number of supporters for this theory, many investors and financial experts also believe the logic behind a theory of expectations is flawed and does not serve as an accurate indicator of future short-term rates in and of itself.
