Arbitrage and the Law of One Price: Setting the Record Straight
John Pippenger
University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara
Abstract:
Using retail commodity prices, most research finds positive Border Effects and rejects effective arbitrage and the Law of One Price. On the other hand, using auction prices, the finance literature and a few articles using commodities support effective arbitrage and the LOP. Using longer intervals and a wider variety of commodity auction prices than ever before, I find strong support for effective arbitrage and the LOP. In addition, for the first time, I use auction prices to look for Border Effects. Both half lives and standard deviations reject positive Border Effects.
Keywords: Social and Behavioral Sciences; exchange rates; arbitrage; Law of One Price; segmentation; auction markets; half lives; borders. (search for similar items in EconPapers)
Date: 2015-12-04
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