Multivariate Cointegration Tests and the Law of One Price in International Wheat Markets

Barry Goodwin ()

Review of Agricultural Economics, 1992, vol. 14, issue 1, 117-124

Abstract: The multivariate cointegration testing procedures recently developed by Johansen are used to evaluate the law of one price (LOP) for prices in five international wheat markets. Efficient arbitrage and trade activities should ensure that individual wheat prices in spatially separated markets are linked through a common long-run equilibrium. The results indicate that the LOP fails as a long-run equilibrium relationship when transportation costs are ignored. However, if wheat prices are adjusted for freight rates, the LOP is fully supported.

Date: 1992
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