There Is a Drawback to the Pure Expectations Theory in That

Essay

There is a drawback to the pure expectations theory in that it does not consider the risks associated with investing in bonds. Nonetheless, there is risk in holding a long-term bond for one period, and that risk increases with the bond's maturity because maturity and price volatility are directly related. Given this uncertainty, and the reasonable consideration that investors typically do not like uncertainty, some economists and financial analysts have suggested a different theory. What is this theory and explain its relevance including its suggestions about implicit forward rates and yield curve.