quote inefficiency in options markets in an arbitrage free economy with non zero bid ask spreads the existence of payoffs whose price is lower than the price of a dominated payoff cannot be discarded in general however when the former price corresponds to trivial portfolios which involve buying or selling one unit of the basis assets its presence although not an arbitrage is a severe market anomaly which we refer to as an inefficient quote in an empirical study we report evidence that indicates that in options markets both the frequency and the magnitude of these anomalies are substantial and we document puzzling patterns in their behavior

trade costs and deviations from the law of one price the link between relative prices across countries and trade costs requires a theoretical foundation that is absent in the literature to date empirical tests on the law of one price are based on an arbitrage equation which is of very limited relevance in understanding this link the application of a new set of arbitrage equations to the tin trade market yields results that are consistent with our theoretical expectations we find evidence in favor of the law of one price between the united states and japan however evidence of price discrimination is also found for the los angeles market

purchasing power parity yet again evidence from spatially separated commodity markets abstract this paper examines the empirical validity of the law of one price by exploiting the non stationarity of prices set in us dollars of varieties of wheat that are traded simultaneously in the usa rotterdam and japan we demonstrate the crucial role of transport costs in achieving cointegration long run ppp although systematic short run deviations from ppp occur we show that this does not imply profitable arbitrage opportunities jel c5 f3 g1

a dynamic general equilibrium analysis of deviations from the laws of one price abstract using disaggregated west german prices this study documents movements in relative export and producer prices and in relative import and producer prices which are variable and highly autocorrelated this suggests the presence of time varying persistent deviations from the laws of one price perfect competition monopoly and monopolistic competition with constant mark up pricing are inconsistent with the variability in relative export and producer prices furthermore cournot oligopoly is inconsistent with the variability in relative import and producer prices a dynamic general equilibrium model with differentiated oligopolistic competition and strategic pricing is shown to generate variable and persistent movements in both measures of relative prices

microfinance and poverty a macro perspective we test the hypothesis that microfinance reduces poverty at the macro level using cross country and panel data which are constructed by the microfinance information exchange data on microfinance institutions mfis and the world bank data taking account of the endogeneity associated with mfis loans we show that a country with higher mfis gross loan portfolio per capita tends to have lower levels of poverty indices contrary to recent micro evidence our results suggest that microfinance significantly reduces poverty at macro level and thus reinforce the case for channeling funds from development finance institutions and governments of developing countries into mfis

does the law of one price hold for hedonic prices hedonic prices of locational attributes in urban land markets are determined by a process of spatial arbitrage that is similar to that which underpins the law of one price if hedonic prices deviat

the law of one price in international commodity markets a reformulation and some formal tests abstract we report formal tests of whether the law of one price lop holds in the long and in the short run for commodities traded in orgnized markets we formalize the distinction between short and long run by introducing lagged price adjustments also we introduce expectations explicitly tests support the long run lop but they reject the short rn lop the long run lop holds better for future prices than for spot prices on average 90 per cent of the deviation from lop is eliminated within 10 weeks but this ranges from 1 to 120 weeks

spot and futures prices and the law of one price the law of one price lop is tested for narrowly defined commodities traded in futures markets in different countries during the period 1973 80 although the lop holds as an average tendency for most of the commodities there are instances of large riskless arbitrage returns before transactions costs deviations from the lop tend to be commodity specific rather than due to a common external factor and they tend to be smaller the longer the maturity of the futures contract in this paper we examine how well the law of one price lop holds for commodities traded internationally the answer to this question is important for two reasons the first is that in most modern theories of exchange rates price arbitrage for at least some goods is a necessary condition to determine the level of exchange rates but recent empirical research on the behavior of various price indices casts doubt on the empirical validity of the lop across countries for even the most disaggregated indices if it is not possible to identify any commodities for which the lop works satisfactorily then models incorporating the lop will not provide an adequate description of exchange rates the second reason for studying individual commodities is to gain information on the efficiency and the degree of integration of international commodity markets in efficient markets international commodity arbitrage implies that for a standard commodity prices in two markets expressed in a common currency will not differ but for transport costs

flexible exchange rates and commodity price changes the case of japan although agricultural commodities are often assumed to have flexible prices little has been done to estimate exchange rate pass through perfect commodity arbitrage opportunities imply complete pass through imperfect opportunities could lead to incomplete pass through analysis of commodity price and exchange rate adjustments for five commodities exported to japan by the united states reveals that during the 1970s commodity prices were generally flexible during the 1980s when the dollar was rising price stickiness on the part of exporters importers contributed to inflexible prices and asymmetric exchange rate response specifically an exchange rate increase was passed through for some commodities but not a decline

pre electoral commitments and government formation recent studies show that pre electoral commitments and the ideological distance between parties influence government formation but do pre electoral pacts or rejections of party combinations really have an independent impact on the outcome of the government formation game which policy areas matter when parties agree to build a coalition this paper addresses these questions by applying a dataset that includes information on preferred rejected coalition partners and the policy area specific programmatic heterogeneity of all potential coalitions the results show that pre electoral commitments have a significant impact on government formation after controlling for endogeneity problems there is also evidence that not only diversity in economic issues determines the partisan composition of governments

market efficiency in the european carbon markets in this paper we study the relationship between futures and spot prices in the european carbon markets from the cost of carry hypothesis the aim is to investigate the extent of efficiency market the three main european markets bluenext eex and ecx are analyzed during phase ii covering the period from march 13 2009 to january 17 2012 futures contracts are found to be cointegrated with spot prices and interest rates for several maturities in the three co2 markets results are similar when structural breaks are taken into account according to individual and joint tests the cost of carry model is rejected for all maturities and co2 markets implying that neither contract is priced according to the cost of carry model the absence of the cost of carry relationship can be interpreted as an indicator of market inefficiency and may bring arbitrage opportunities in the co2 market

microfinance and child mortality microfinance institutions mfis offer targeted opportunities for the poor to generate additional income with a range of financial services including credit insurance savings accounts and money t

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

the law of one price revisited new evidence on the behavior of international prices i introduction the law of one price asserts that prices of identical goods should be equalized internationally when expressed in a common currency and adjusted for any contract differences transportation costs and trade distortions the intuition is that international arbitrage should work to eliminate any persistent price discrepancies due solely to differences in the country of origin or sale of goods thus stated the law of one price is frequently assumed to hold in theoretical and empirical models of international trade yet based on evidence from the 1950s 1960s and early 1970s the proposition does not appear to characterize the actual price behavior of many traded goods the evidence further indicates that deviations from absolute price equalization are often both large and protracted even during periods of comparative exchange rate stability 1 the relative version of the law of one price posits that rates of change in prices will be equalized meaning that exchange rate adjusted inflation rates should be the same for similar traded goods empirical support for this alternative has also been lacking 2 as isard 1977b indicates this evidence calls into question any appeal to microfoundations as a basis for macroeconomic price convergence in the form of purchasing power parity ppp it also casts doubt on the role of price linkages in both international market integration and the transmission of economic disturbances across national borders the prevailing view on international price equalization derives from evidence and analyses which are dated and need not apply to current economic conditions most published studies involve data from fixed rate periods very early episodes of floating rates or the first years of the present flexible rate system an analysis based on more contemporary data is warranted in view of the substantial exchange rate movements and the perceived increase in international integration that have occurred since these earlier studies 3 in addition a fresh look at the evidence can make use of both the longer time series data and new time series techniques that are now available accordingly this study updates the microeconomic evidence on international price equalization while investigating the existence and nature of the long run relationship between traded goods prices it analyzes the behavior of u s export prices relative to japanese and german dollar export prices for carefully matched identically weighted categories of manufactured goods over the current floating rate period stationarity and cointegration tests are used to assess the time series properties of these relative export prices and to determine the extent to which the common currency prices of similar exports are related internationally in the long run while these methods have been used in analyses of purchasing power parity they have not been extended to studies of traded goods prices at the microeconomic level ii data description this study is based on a set of quarterly relative dollar export price indexes constructed by the bureau of labor statistics bls the data represent ratios of u s export prices to german or japanese export prices expressed in dollars for highly comparable product groups conceptually the series measure the average price of a particular set of u s exports to all foreign markets relative to a dollar price index for a similar set of exports from germany or japan the indexes are weighted averages of transactions contract prices of individual exports reported on an f o b free on board or f a s free along side ship basis for the final month of each quarter and adjusted for quality changes the categories are fairly disaggregated e g valves trucks over 2000cc so that the comparison is between relatively narrow product categories two additional features in the bls s design of the series ensure a high degree of comparability between the pairs of export categories

currency risk and relative price risk this paper demonstrates the strong linkages that exist between currency risk represented by inflation risk and exchange rate changes and relative price risk these linkages affect the optional quantities of forward exchange contracts nominal debt and fixed price sales purchase contracts to use in hedging against these risks it is shown that the existence of as many hedging mechanisms as there are forms of price risk allows for the precise targeting of specific price risks with specific hedging instruments moreover even though each hedging mechanism specializes in protecting against a particular form of price risk the optimal quantitiy of each influences and is influenced by the optimal quantities of the others

commodity prices exchange rates and their relative volatility abstract exchange rates are move volatile than rates implied by ppp using conventional price indexes this fact has led many to believe that exchange rates fluctuate more than is warranted by the variability in commodity prices and supports those who believe that fluctuations in exchange rates are excessive we show that exchange rates are less volatile than commodity prices in auction markets and less volatile than rates implied by the law of one price using such prices we also show that the behavior of exchange rates and the rates implied by these commodity prices is not consistent with the dornbusch overshooting model

empirically testing the law of one price in an international commodity market a rational expectations application to the natural rubber market abstract the law of one price lop is an important ingredient in theories of international trade and exchange rate determination an important shortcoming of the existing empirical literature is that parity is typically assumed to hold contemporaneously this overlooks the fact that international commodity arbitrage takes place over time as well as across spatially separated markets recognizing this fact we expect to see parity holding for expected prices a model which incorporates the expectations of commodity arbitragers is constructed and used to test the lop in the natural rubber market results indicate that the inclusion of expectations may be of value when considering the lop

identifying price linkages a review of the literature and an application to the world market of cotton this paper reviews the literature of price linkages and examines the degree to which cotton prices are linked it also tests whether such linkages have improved over the last decade it concludes that the degree of linkage has improved over the last decade while the main source of this improvement appears to be a result of short run price transmission and to a lesser extent long run co movement

the law of one price a test based on prices for selected inputs in new zealand agriculture the law of one price loop is an essential foundation of both the pure theory of trade and monetary theory strictly speaking the law relates to prices of individual commodities however empirical tests of loop have often relied on aggregated data in this paper a model is derived and estimated using price data for 15 selected inputs in new zealand agriculture the results offer no support for the loop in the short run and the results for the long run are mixed it may be inappropriate therefore to assume that the loop holds generally in modelling exercises particularly when models are used for policy purposes

what does purchasing power parity mean this paper examines the theoretical and empirical content of purchasing power parity ppp in efficient markets it analyzes the sources of deviations from the strictest version of ppp that exchange adjusted price levels are everywhere identical focusing on the role played by uncertainty relative price changes inappropriate price data transaction costs and government intervention in creating these deviations it then identifies and addresses the key issue involving purchasing power parity are the deviations from ppp that occur sufficiently large persistent and predictable as to enable individuals or governments to successfully exploit them an answer of no is shown to be consistent with both economic theory and the empirical evidence

more about the law of one price this article explores the general difficulty of testing the law of one price based on evidence about commodity prices and exchange rates but without regard to transfer costs it then reports on tests based on this sort of limited evidence using price data at the finest possible level of disaggregation in any official statistics a part of the results are favorable to the law but the clearest conclusion is that we shall probably never be able to come to any general verdict about the law in the absence of evidence about transfer costs

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure