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Multivariate Cointegration Tests and the Law of One Price in International Wheat Markets

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  • Barry K. Goodwin

Abstract

The multivariate cointegration testing procedures recently developed by Johansen are used to evaluate the law of one price (LOP) for prices in five international wheat markets. Efficient arbitrage and trade activities should ensure that individual wheat prices in spatially separated markets are linked through a common long-run equilibrium. The results indicate that the LOP fails as a long-run equilibrium relationship when transportation costs are ignored. However, if wheat prices are adjusted for freight rates, the LOP is fully supported.

Suggested Citation

  • Barry K. Goodwin, 1992. "Multivariate Cointegration Tests and the Law of One Price in International Wheat Markets," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 14(1), pages 117-124.
    • Handle: RePEc:oup:revage:v:14:y:1992:i:1:p:117-124.
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