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Abstract
The Law of One Price (LOP) is an important ingredient in theories of international trade and
exchange rate determination. An important shortcoming of the existing empirical literature is
that parity is typically assumed to hold contemporaneously. This overlooks the fact that international
commodity arbitrage takes place over tim~> <<8 well as across spatially separated markets.
Recognizing this fact, we expect to see parity holding for expected prices. A model which incorporates
the expectations of commodity arbitragers is constructed and used to test the LOP in the
natural rubber market. Results indicate that the inclusion of expectations may be of value when
considering the LOP.