Critical Finance Review > Vol 14 > Issue 2

Law of One Price Violation in Parent-Subsidiary Relations

Anne-Marie Anderson, University of Arizona, USA, aanderson24@arizona.edu , Benjamin Jansen, Middle Tennessee State University, USA, benjamin.jansen@mtsu.edu
 
Suggested Citation
Anne-Marie Anderson and Benjamin Jansen (2025), "Law of One Price Violation in Parent-Subsidiary Relations", Critical Finance Review: Vol. 14: No. 2, pp 217-232. http://dx.doi.org/10.1561/104.00000157

Publication Date: 09 Apr 2025
© 2025 Anne-Marie Anderson and Benjamin Jansen
 
Subjects
 
Keywords
G12G14G32
Asset pricingMarket efficiencyFirm value
 

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In this article:
1. Introduction 
2. Literature Review 
3. Data, Summary Statistics, and Nonparametric Tests 
4. Conclusion 
Appendix 
References 

Abstract

We present evidence of a persistent violation of the law of one price in the U.S. stock market. Using a hand collected dataset which corrects for the data errors in SDC, we find that the value of the parent’s ownership in the subsidiary can exceed the parent firm’s total market value consistent with prior literature. Contrary to what efficient capital markets would suggest, this price aberration is persistent, and we show that it is possible to profitably trade by taking advantage of the price discrepancy.

DOI:10.1561/104.00000157