Testing arbitrage in newsprint imports to United Kingdom and Germany

The arbitrage was tested for United Kingdom and German newsprint imports from Finland, Sweden, and Canada using the hypothesis of 'the law of one price' (LOP). The LOP states that prices of homogenous commodities, defined in the common currency, are equal throughout the world. Concept of cointegration and Johansen's multivariate method were used in 11T to testing the LOP in the long run. The empirical data were quarterly covering the period 1980--1994. The hypothesis that the LOP holds for all three supplier countries simultaneously was not supported by the multivariate test results in either importing country. Cointegration tests rejected the simultaneous LOP between the three import prices in both markets. The LOP was also tested pairwise, and itwas found to hold between Swedish and Canadian prices in the UK market. [ABSTRACT FROM AUTHOR]