Some empirical evidence on commodity arbitrage and the law of one price |
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Authors: | JDavid Richardson |
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Institution: | University of Wisconsin at Madison, Madison, WI 53706, U.S.A. |
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Abstract: | This paper draws three conclusions from a regression study of disaggregated commodity arbitrage between the U.S. and Canada: (1) Inability to detect commodity arbitrage characterizes a majority of commodity classes, which can potentially be described as nontradeables. (2) Commodity arbitrage is never perfect. (3) When commodity arbitrage is detected, Canadian prices invariably respond as much or more to the exchange rate as they do to U.S. prices. |
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