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Can the Law of One Price be tested?

By Kostov Philip


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.

Topics: F14 - Empirical Studies of Trade, F0 - General
Year: 2006
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