English, Article, Journal or magazine article edition: A new solution to the purchasing power parity puzzles? Risk-aversion, exchange rate uncertainty and the law of one price: Insights from the market of online air-travel tickets Arghyrou, Michael G; Gregoriou, Andros; Pourpourides, Panayiotis M.

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • A new solution to the purchasing power parity puzzles? Risk-aversion, exchange rate uncertainty and the law of one price: Insights from the market of online air-travel tickets
Author
  • Arghyrou, Michael G
  • Gregoriou, Andros
  • Pourpourides, Panayiotis M.
Physical Description
  • preprint
Notes
  • We argue that even in perfectly frictionless markets risk aversion driven by exchange rate uncertainty may cause a wedge between the domestic and foreign price of a totally homogeneous good. We test our hypothesis using a natural experiment based on a unique micro-data set from a market with minimum imperfections. The empirical findings validate our hypothesis, as accounting for exchange rate uncertainty we are able to explain a substantial proportion of deviations from the law of one price. Overall, our analysis suggests the possibility of a new solution to the purchasing power parity puzzles.
  • Law of one price; purchasing power parity; risk aversion; exchange rate uncertainty
  • RePEc:cdf:wpaper:2009/​2
Language
  • English
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