Interpretations of Pure Expectations Hyp for Term Structure

[LB]

On the JAM CO underthe above heading the first two points are as follows:

1. Investors expect the same return for their investment horizon no matter what maturity strategy is selected.

2. Local expectations


From what I found on local expectations I cannot tell the diference between 1 and 2.

Any help?

[persephone]

They are just stating that these are two of the interpretations given by economists. So, #1 (#1 and #2 defined in your original message) is just a broader interpretation of #2 (any investment horizon in #1 vs. a short-term investment horizon in #2).

Note that the book states that only #2 can be sustained in equilibrium. However, I don't understand what they mean by "in equilibrium." Maybe someone else can help me out now. :)