Why did the Korean chipmaker violate the Law of One Price?

It violated because the ADRs were priced differently from the local shares, and professionals couldn't arbitrage the difference.

What is the famous Palm case?

In 2000, 3Com sold part of Palm via an IPO, and Palm's market cap exceeded 3Com's entire value, violating the Law of One Price.

How can investors protect themselves from such situations?

Investors should focus on fundamentals, avoid buying during extreme hype, and cautiously seek arbitrage opportunities.

Law of One Price Violated: Korean Chipmaker's $26.5B IPO

A hot Korean memory-chip maker violated the Law of One Price by raising $26.51 billion via American depositary receipts. This occurs when sophisticated traders cannot profit from price differences, often after novice investors flood the market. The most famous example was Palm's IPO before the tech bubble burst.

July 16, 2026

2 min read

Source: The Wall Street Journal

Key Numbers

raised amount

26.51B

company

Korean memory-chip maker

A red-hot Korean memory-chip maker violated the Law of One Price last week by raising $26.51 billion through American depositary receipts (ADRs) that U.S. investors can buy in dollars. This violation happens when it's hard for sophisticated traders to profit from such differences, often after many novice investors pile into the market.

Details

The Korean chipmaker sold ADRs worth $26.51 billion, reflecting strong U.S. investor demand but raising questions about fair pricing.

Context

The most famous example of a Law of One Price violation occurred a week before the tech bubble burst, when 3Com partially sold Palm, maker of Palm Pilots. At that time, Palm's market cap exceeded 3Com's entire value, creating an arbitrage opportunity that professionals couldn't exploit due to market constraints.

What It Means for Investors

This incident reminds investors that markets are not always efficient, especially during periods of extreme enthusiasm. Investors should be cautious when investing in hot IPOs and focus on fundamentals.

Frequently Asked Questions

The Law of One Price states that the same asset should sell for the same price in different markets after adjusting for exchange rates.

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This article was rewritten in Wrqti's editorial style based on information from the original source above. Content is informational only — not investment advice.