This paper studies whether trading costs or transparency/tradability are more important to price discovery using a unique dataset of currency options that trade simultaneously in two parallel markets. The Over-The-Counter (OTC) market is characterized by sophisticated investors, low trading...

We jointly re-specify the relative purchasing power parity (RPPP) and uncovered interest rate parity (UIP) conditions as the (log) ratio of stochastic discount factors by inverting the market price of risk formula. Our empirical model provides new insights, which show that violations to UIP and...