Risk aversion, exchange-rate uncertainty, and the law of one price: insights from the market for online air-travel tickets
We argue that risk aversion driven by exchange-rate uncertainty causes a wedge between the domestic and foreign prices of a homogeneous good. We test our hypothesis using a unique micro-data set from a market with minimum imperfections. The empirical findings validate our hypothesis, as accounting for exchange-rate uncertainty we are able to explain a significant proportion of deviations from the law of one price. Overall, our analysis suggests the possibility of a new solution to the purchasing power parity puzzles.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 44 (2011)
Issue (Month): 3 (August)
|Contact details of provider:|| Postal: |
Web page: http://economics.ca/cje/
More information through EDIRC
|Order Information:|| Web: http://economics.ca/en/membership.php Email: |
When requesting a correction, please mention this item's handle: RePEc:cje:issued:v:44:y:2011:i:3:p:880-906. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Werner Antweiler)
If references are entirely missing, you can add them using this form.