Price dynamics, LOP and quantile regressions

Santeramo, Fabio (2021): Price dynamics, LOP and quantile regressions. Forthcoming in: Journal of Agricultural and Resource Economics

Abstract

The Law of One Price is a dated but still a puzzling economic concept. Studies that found violations of the Law are frequent and numerous, although scholars have pointed that failures of the Law are likely to be due to lack of informative datasets. In addition, for storable commodities, the possible interactions of spatial and temporal arbitrage may hide the implications of the Law, invalidating the conclusions of the studies. Based on a simplified two-market model of spatio-temporal arbitrage, I review the implications of the Law of One Price and test for them with a rich dataset of weekly prices of storable commodities, and information on transaction costs, trade and storage. I conclude that most of the statements implied by the Law of One Price are indeed not empirically violated.

• Item Type: MPRA Paper
• Language: English
• Keywords: Arbitrage, Quantile, Storage, Trade, Transaction Cost
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; P - Economic Systems > P4 - Other Economic Systems > P42 - Productive Enterprises ; Factor and Product Markets ; Prices ; Population; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q11 - Aggregate Supply and Demand Analysis ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q13 - Agricultural Markets and Marketing ; Cooperatives ; Agribusiness; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q17 - Agriculture in International Trade

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