Which theory of the term structure is usually criticized for underestimating the substitutability of different maturities of securities?
A) The expectations theory
B) The supply and demand approach
C) The liquidity premium theory
D) The preferred habitat approach

Question

Quizplus · Accepted Answer

The supply and demand approach is often criticized for underestimating the substitutability of different maturities of securities because it suggests that investors have strong preferences for certain maturities based on supply and demand conditions, ignoring the fact that investors might be willing to substitute between maturities if the conditions are right.

Which Theory of the Term Structure Is Usually Criticized for Underestimating