Philip, Kostov (2006): Can the Law of One Price be tested?
Download (47Kb) | Preview
A simple stylised model, that incorporates transaction costs, is developed. The Law of One Price (LOP) is assumed to hold with regard to a reference market that is not taken into account in the empirical testing of the Law. It is shown that under these assumptions the empirical tests of the LOP will fail.
|Item Type:||MPRA Paper|
|Original Title:||Can the Law of One Price be tested?|
|Keywords:||Law of one price; purchasing power parity; transaction costs|
|Subjects:||F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade
F - International Economics > F0 - General
|Depositing User:||Philip Kostov|
|Date Deposited:||31. Oct 2006|
|Last Modified:||18. Feb 2013 23:16|
Alessandria, G. and J Kaboski .2004. Violating purchasing power parity, Working Paper No. 04-19, Federal Reserve Bank of Philadelphia. Barzel, Y. 2005. Replacing the Law of One Price with the Price Convergence Law. Bec, F., M. Carrasco, and M. B.Salem. 2004. Tests for unit root versus threshold specification with an application to the PPP, Journal of Business and Economic Statistics 22(4), 382-395. Clark, P.K. 1973. A subordinated stochastic process model with finite variance for speculative prices, Econometrica 41, 135-155. Heckscher, E. F. 1916. Vaxelkursens Grundval vid Pappersmyntfot. Ekonomisk Tidskrift 18, 309-312. Lamont, O. A. and R. H. Thaler .2003. Anomalies: The Law of One Price in Financial Markets, Journal of Economic Perspectives 17 (4), 191–202. Obstfeld, M. and A. Taylor .1997. Nonlinear aspects of goods-market arbitrage and adjustment: Heckscher's commodity points revisited, NBER Working Paper 6053. Sercu, P., R. Uppal, and C. Van Hulle .1995. The exchange rate in the presence of transaction costs: implications for tests of purchasing power parity. Journal of Finance 50 (4), 1309-19. Shiha, A. N. and J. P. Chavas .1995. Capital market segmentation and U.S. farm real estate pricing, American Journal of Agricultural Economics 77, 397-407.