IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/628.html
   My bibliography  Save this paper

Can the Law of One Price be tested?

Author

Listed:
  • Philip, Kostov

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.

Suggested Citation

  • Philip, Kostov, 2006. "Can the Law of One Price be tested?," MPRA Paper 628, University Library of Munich, Germany, revised 17 Jan 2006.
  • Handle: RePEc:pra:mprapa:628
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/628/1/MPRA_paper_628.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. George Alessandria & Joseph P. Kaboski, 2004. "Violating purchasing power parity," Working Papers 04-19, Federal Reserve Bank of Philadelphia.
    2. Yoram Barzel, 2005. "Replacing the Law of One Price with the Price Convergence Law," Working Papers UWEC-2005-10, University of Washington, Department of Economics, revised Mar 2005.
    3. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
    4. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. " The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, vol. 50(4), pages 1309-1319, September.
    5. 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.
    6. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Law of one price; purchasing power parity; transaction costs;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F0 - International Economics - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:628. 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: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.