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Spot and Futures Prices and the Law of One Price
Author(s) -
PROTOPAPADAKIS ARIS,
STOLL HANS R.
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03833.x
Subject(s) - futures contract , arbitrage , spot contract , economics , law of one price , commodity , maturity (psychological) , financial economics , monetary economics , mid price , law , price level , market economy , political science
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.