Can the Law of One Price be tested?

Philip, Kostov (2006): Can the Law of One Price be tested?

Abstract

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
• Language: English
• 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

References

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