The law of one price posits that ability to arbitrage would force prices of identical goods to trade at equal prices. However, empirical evidence suggests that __________ are often mispriced.
A) Siamese twin companies
B) equity carve-outs
C) closed-end funds
D) None of the options are correct.
E) All of the options are correct.

Question

Quizplus · Accepted Answer

The law of one price suggests that identical goods should have the same price due to arbitrage opportunities. However, in practice, Siamese twin companies, equity carve-outs, and closed-end funds often exhibit pricing discrepancies or mispricing, contrary to what the law of one price would predict. These anomalies occur due to various market inefficiencies, information asymmetries, and other factors that prevent perfect arbitrage.

The Law of One Price Posits That Ability to Arbitrage