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A New Correlation Coefficient for Bivariate Time-Series Data

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Author Info

  • Orhan Erdem

    (Istanbul Bilgi University)

  • Elvan Ceyhan

    (Koc University)

  • Yusuf Varlı

    (Istanbul Bilgi University)

Abstract

Correlation in time series has recently recieved a lot of attentions. Its usage has been getting an important role in Social Science and Finance. For example, pair trading in Finance is interested with the correlation between stock prices, returns etc. In general, Pearsonís correlation coefficient is seen in the area, although it has many assumptions which restrict its usage. In here, we introduce a new correlation coe¢ cient which takes account the lag difference of data points as a moment. It is more convenient to show the the direction of the movements of the two variables over time. We also simulate the main differences between Pearson's and our correlation coe¢ cients in some cases.

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File URL: http://repeck.bilgi.edu.tr/RePEc/msc/wpaper/mscenter_2011_01_Erdem_Ceyhan__Varli_-_A_New_Correlation_Coefficient_for_Bivariate_Time-Series_Data.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Murat Sertel Center for Advanced Economic Studies, Istanbul Bilgi University in its series Working Papers with number 201101.

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Length: 13 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:msc:wpaper:201101

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Web page: http://mscenter.bilgi.edu.tr
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Related research

Keywords: Asymptotic normality; consistency; cross-correlation; Pearson’s correlation coe¢ cient; stock returns; stationarity.;

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  1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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