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Journal of Economic Perspectives: Vol. 17 No. 4 (Fall 2003)

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Anomalies: The Law of One Price in Financial Markets

Article Citation

Lamont, Owen A., and Richard H. Thaler. 2003. "Anomalies: The Law of One Price in Financial Markets." Journal of Economic Perspectives, 17(4): 191-202.

DOI: 10.1257/089533003772034952

Abstract

The Law of One price states that identical goods (or securities) should sell for identical prices. In financial markets the law of one price is thought to hold almost exactly, and is the basis for much of financial economic theory. We present evidence on several examples of violations of this law, including closed-end country funds, twin shares, dual class shares, and corporate spinoffs. We analyze the causes of these violations, and show they all stem from some limits on the extent to which rational arbitrageurs can intervene.

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Authors

Lamont, Owen A.
Thaler, Richard H.

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