Commodity Arbitrage and the Law of One Price: Setting the Record Straight
Theoretical Economics Letters2016Vol. 06(05), pp. 1017–1033
Citations Over TimeTop 12% of 2016 papers
Abstract
A general consensus rejects effective commodity arbitrage and the law of one price. But this consensus is mistaken because it is based on research using retail prices where price differentials do not represent risk-free profits. Using commodity auction prices, a few articles support effective arbitrage and the LOP. Using longer intervals and a wider variety of commodities than ever before, this paper provides even stronger support for effective commodity arbitrage and the Law of One Price. In addition, for the first time, it uses commodity auction prices rather than retail prices to look for border effects and rejects them.
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