Which of the following does not explain the shape of an yield curve?

Which of the following does not explain the shape of an yield curve?
A . Market segmentation theory
B . The expectations hypothesis
C . The efficient markets hypothesis
D . The liquidity preference theory

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Answer: C

Explanation:

The efficient markets hypothesis states that all known information is captured in the prices of a security. It does not explain the shape of the yield curve.

The expectations hypothesis, the LPT and the market segmentation theory are all attempts to explain the shape of the term structure of interest rates.

Therefore Choice ‘c’ is the correct answer as it does not explain the shape of the yield curve.