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Anomalies: The Law of One Price in Financial Markets

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  • Owen A. Lamont
  • Richard H. Thaler

Abstract

The Law of One price states that identical goods (or securities) should sell for identical prices. In financial markets the law of one price is thought to hold almost exactly, and is the basis for much of financial economic theory. We present evidence on several examples of violations of this law, including closed-end country funds, twin shares, dual class shares, and corporate spinoffs. We analyze the causes of these violations, and show they all stem from some limits on the extent to which rational arbitrageurs can intervene.

Suggested Citation

  • Owen A. Lamont & Richard H. Thaler, 2003. "Anomalies: The Law of One Price in Financial Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 191-202, Fall.
  • Handle: RePEc:aea:jecper:v:17:y:2003:i:4:p:191-202
    Note: DOI: 10.1257/089533003772034952
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    References listed on IDEAS

    as
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    3. Peter Klibanoff & Owen Lamont & Thierry A. Wizman, 1998. "Investor Reaction to Salient News in Closed-End Country Funds," Journal of Finance, American Finance Association, vol. 53(2), pages 673-699, April.
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