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What does a flat yield curve say about the liquidity premiums in the term structure. Would we be more or less willing to accept the expectations theory?
Concept Introduction:
Yield Curve: It represents the relationship between the yields of fixed interest securities and maturity period.
Expectation theory of term structure: It states that the returns on financial assets of different maturities are primarily related to the market expectations of future return.
Risk Premium: It is the minimum amount of money by which the expected return on a risky asset must exceed the return on a risk-free asset, so that an investor holds the risky asset.
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Economics of Money, Banking and Financial Markets, The, Business School Edition (4th Edition) (The Pearson Series in Economics)
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