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Copula-based nonlinear modeling of the law of one price for lumber productsAuthor(s): Barry K. Goodwin; Matthew T. Holt; Gülcan Önel; Jeffrey P. Prestemon
Source: Empirical Economics
Publication Series: Scientific Journal (JRNL)
Station: Southern Research Station
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DescriptionThis paper proposes an alternative and potentially novel approach to analyzing the law of one price in a nonlinear fashion. Copula-based models that consider the joint distribution of prices separated by space are developed and applied to weekly prices for lumber products. The copulas capture nonlinearities that arise in the extremes of the joint distributions of price differentials and suggest faster equilibrating adjustments when deviations from parity are extreme.
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CitationGoodwin, Barry K.; Holt, Matthew T.; Önel, Gülcan; Prestemon, Jeffrey P. 2018. Copula-based nonlinear modeling of the law of one price for lumber products. Empirical Economics. 54(3): 1237-1265. 29 p. https://doi.org/10.1007/s00181-017-1235-4
KeywordsLaw of one price · Copulas · Nonlinear time series models
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