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North American Oriented Strand Board Markets, Arbitrage Activity, and Market Price Dynamics: A Smooth Transition Approach

Goodwin, Barry K. and Holt, Matthew T. and Prestemon, Jeffery P. (2008): North American Oriented Strand Board Markets, Arbitrage Activity, and Market Price Dynamics: A Smooth Transition Approach.

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Abstract

Price dynamics for North American oriented strand board (OSB) markets are examined. The role of transactions costs are explored vis-a-vis the law of one price. Weekly data, February 3rd, 1995 through October 9th, 2009, are used in the analysis. Nonlinearities induced by unobservable transactions costs are modeled by estimating Time-Varying Smooth Transition Autoregressions (TV-STARs). Results indicate that nonlinearity and structural change are important features of these markets; price parity relationships implied by economic theory are generally supported by the estimated models. Implications for the efficiency of spatial market linkages and the dynamics associated with price adjustments are also examined.

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