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Can the Law of One Price be tested?

Philip Kostov

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Law of one price; purchasing power parity; transaction costs (search for similar items in EconPapers)
JEL-codes: F14 F0 (search for similar items in EconPapers)
Date: 2006-01-17, Revised 2006-01-17
New Economics Papers: this item is included in nep-cba and nep-ifn
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