Market Segmentation Theory
Barron's Banking Dictionary:
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Market Segmentation Theory
Theory of interest rates that says short-term and long-term markets act independently of each other and that investors have fixed maturity preferences. Also called segmented markets theory. Supporters of this theory maintain that short-term and long-term rates are distinct markets, each with its own buyers and sellers, and are not easily substituted for each other. See also Expectations Theory; Liquidity Preference Theory.
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Market Segmentation Theory
Investopedia Financial Dictionary:
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Market Segmentation Theory
A modern theory pertaining to interest rates stipulating that there is no necessary relationship between long and short-term interest rates. Furthermore, short and long-term markets fall into two different categories. Therefore, the yield curve is shaped according to the supply and demand of securities within each maturity length.
Investopedia Says:
Also called the "Segmented Markets Theory", this idea states that most investors have set preferences regarding the length of maturities that they will invest in. Market segmentation theory maintains that the buyers and sellers in each of the different maturity lengths cannot be easily substituted for each other. An offshoot to this theory is that if an investor chooses to invest outside their term of preference, they must be compensated for taking on that additional risk. This is known as the Preferred Habitat Theory.
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Barron's Banking Dictionary
Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.
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