“With respect to local expectations theory, short-term holding period return of long-maturity bonds exceeds the short-term holding period returns of short-maturity bonds.” Can anybody please explain this statement. Thanks in advance.
If you but a 10-year bond, hold it for one year, then sell it, you’ll receive a higher return than if you had bought a 1-year bond and held it to maturity.
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Isn’t this the rolling down yield curve strategy?
Exactly!
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But does the local expectation hold close to the short end of the yield curve
I cannot think of a particular (economic) reason that it should.