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A Portfolio Approach to Estimating the Average Correlation Coefficient for the Constant Correlation Model

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  • Aneja, Yash P
  • Chandra, Ramesh
  • Gunay, Erdal

Abstract

This paper presents a portfolio approach to estimating the average correlation coefficient of a group of stocks that are considered for portfolio analysis. The average correlation coefficient has been shown to produce a better estimate of the future correlation matrix than individual pairwise correlations. The advantage of the approach described here is that it does not require the estimation of pairwise correlations for estimating their average. Copyright 1989 by American Finance Association.

Suggested Citation

  • Aneja, Yash P & Chandra, Ramesh & Gunay, Erdal, 1989. " A Portfolio Approach to Estimating the Average Correlation Coefficient for the Constant Correlation Model," Journal of Finance, American Finance Association, vol. 44(5), pages 1435-1438, December.
  • Handle: RePEc:bla:jfinan:v:44:y:1989:i:5:p:1435-38
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    Cited by:

    1. Riza Demirer & Donald Lien, 2004. "Firm-level return dispersion and correlation asymmetry: challenges for portfolio diversification," Applied Financial Economics, Taylor & Francis Journals, vol. 14(6), pages 447-456.
    2. repec:kap:compec:v:50:y:2017:i:3:d:10.1007_s10614-016-9589-9 is not listed on IDEAS
    3. Demirer, RIza & Lien, Donald, 2005. "Correlation and return dispersion dynamics in Chinese markets," International Review of Financial Analysis, Elsevier, vol. 14(4), pages 477-491.
    4. repec:spr:jglopt:v:68:y:2017:i:2:d:10.1007_s10898-016-0477-6 is not listed on IDEAS
    5. Sankaran, Jayaram K. & Patil, Ajay A., 1999. "On the optimal selection of portfolios under limited diversification," Journal of Banking & Finance, Elsevier, vol. 23(11), pages 1655-1666, November.

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