The Gains from Improved Market Efficiency: Trade Before and After the Transatlantic Telegraph
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The Gains from Improved Market Efficiency : Trade Before and After the Transatlantic Telegraph. / Persson, Karl Gunnar; Ejrnæs, Mette.
Cph. : Department of Economics, University of Copenhagen, 2006.Research output: Working paper › Research
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TY - UNPB
T1 - The Gains from Improved Market Efficiency
T2 - Trade Before and After the Transatlantic Telegraph
AU - Persson, Karl Gunnar
AU - Ejrnæs, Mette
N1 - JEL Classification: F1, C5, N7
PY - 2006
Y1 - 2006
N2 - This paper looks at the gains from improved market efficiency in long-distance grain trade in the second half of the 19th century when violations of the law of one price were reduced due to improved information transmission. Two markets, a major export centre, Chicago, and a major importer, Liverpool, are analyzed. We show that there was a law of one price equilibrium throughout the period but that markets displayed spells of demand- or supply-constrained trade when the law of one price was violated. Over time adjustments back to equilibrium, as measured by the half-life of a shock, become faster, violations of the law of one price become smaller and hence less persistent. There were also significant gains from improved market efficiency but that improvement took place after the information ‘regime’ shifted from pre-telegraphic communication to a regime with swift transmission of information in an era which developed a sophisticated commercial press and telegraphic communication. Improved market efficiency probably stimulated trade more than falling transport costs
AB - This paper looks at the gains from improved market efficiency in long-distance grain trade in the second half of the 19th century when violations of the law of one price were reduced due to improved information transmission. Two markets, a major export centre, Chicago, and a major importer, Liverpool, are analyzed. We show that there was a law of one price equilibrium throughout the period but that markets displayed spells of demand- or supply-constrained trade when the law of one price was violated. Over time adjustments back to equilibrium, as measured by the half-life of a shock, become faster, violations of the law of one price become smaller and hence less persistent. There were also significant gains from improved market efficiency but that improvement took place after the information ‘regime’ shifted from pre-telegraphic communication to a regime with swift transmission of information in an era which developed a sophisticated commercial press and telegraphic communication. Improved market efficiency probably stimulated trade more than falling transport costs
KW - Faculty of Social Sciences
KW - market integration
KW - law of one price
KW - error correction
M3 - Working paper
BT - The Gains from Improved Market Efficiency
PB - Department of Economics, University of Copenhagen
CY - Cph.
ER -
ID: 312713