FRACTIONAL CONINTEGRATION AND THE FALSE REJECTION OF THE LAW OF ONE PRICE IN INTERNATIONAL COMMODITY MARKETS Report as inadecuate




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This study examines the Law of One Price (LOP) in international commodity markets using fractional cointegration analysis. For proper evaluation of the LOP, fractional cointegration analysis seems to be appropriate because of its flexibility in capturing a wider range of mean reversion behavior than standard cointegration analysis. Out of nine pairs of price series examined, fractional cointegration supports the existence of the LOP in eight cases, as compared to three cases using standard cointegration procedures. Overall, these results suggest that there is a long-run tendency for the LOP to hold for commodity prices.

Keywords: Fractional cointegration ; International commodity markets ; Law of One Price

Subject(s): Demand and Price Analysis

Issue Date: 1998-12

Publication Type: Journal Article

PURL Identifier: http://purl.umn.edu/15554 Published in: Journal of Agricultural and Applied Economics, Volume 30, Number 2 Page range: 267-276

Total Pages: 10

Record appears in: Southern Agricultural Economics Association (SAEA) > Journal of Agricultural and Applied Economics





Author: Mohanty, Samarendu ; Peterson, E. Wesley F. ; Smith, Darnell B.

Source: http://ageconsearch.umn.edu/record/15554?ln=en







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