Risk aversion, exchange-rate uncertainty, and the law of one price: insights from the market for online air-travel tickets

Arghyrou, Michael Georgiou ORCID: https://orcid.org/0000-0001-6222-5086, Gregoriou, Andros and Pourpourides, Panayiotis ORCID: https://orcid.org/0000-0002-2986-4094 2011. Risk aversion, exchange-rate uncertainty, and the law of one price: insights from the market for online air-travel tickets. Canadian Journal of Economics/Revue canadienne d'économique 44 (3) , pp. 880-906. 10.1111/j.1540-5982.2011.01659.x

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Abstract

We argue that risk aversion driven by exchange-rate uncertainty causes a wedge between the domestic and foreign prices of a homogeneous good. We test our hypothesis using 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 significant 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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Subjects:	B Philosophy. Psychology. Religion > BF Psychology H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce
Publisher:	Wiley-Blackwell
ISSN:	1540-5982
Last Modified:	21 Oct 2022 10:13
URI:	https://orca.cardiff.ac.uk/id/eprint/39452

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