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Which of the term structure theories claims that investors are limited to certain maturity ranges due to legal restrictions and personal preferences?.

Sagot :

Answer:

The market segmentation theory.

Explanation:

Market segmentation theory holds that long-term and short-term interest rates are unrelated. It also argues that the current interest rates for short, intermediate, and long-term bonds should be assessed individually, as if they were products in various debt securities markets.

According to market segmentation theory, each asset maturities market group is primarily composed of investors who, in this example, choose to invest in securities with certain durations such as short-term, long-term, or intermediate. Furthermore, the theory states that buyers and sellers in the short-term securities market have unique characteristics and motives when opposed to buyers and sellers in the long-term and intermediate maturity securities markets.

Reference: Snellman, Kaisa. From One Segment to a Segment of One-The Evolution of Market Segmentation Theory. Svenska handelshögskolan, 2000.