Correlation and the time interval over which the variables are measured – A non-parametric approach

Edna Schechtman and Amit Shelef

PLOS ONE, 2018, vol. 13, issue 11, 1-9

Abstract: It is known that when one (or both) variable is multiplicative, the choice of differencing intervals (n) (for example, differencing interval of n = 7 means a weekly datum which is the product of seven daily data) affects the Pearson correlation coefficient (ρ) between variables (often asset returns) and that ρ converges to zero as n increases. This fact can cause the resulting correlation to be arbitrary, hence unreliable. We suggest using Spearman correlation (r) and prove that as n increases Spearman correlation tends to a limit which only depends on Pearson correlation based on the original data (i.e., the value for a single period). In addition, we show, via simulation, that the relative variability (CV) of the estimator of ρ increases with n and that r does not share this disadvantage. Therefore, we suggest using Spearman when one (or both) variable is multiplicative.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0206929 (text/html)
https://journals.plos.org/plosone/article/file?id= ... 06929&type=printable (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0206929

DOI: 10.1371/journal.pone.0206929

Access Statistics for this article

More articles in PLOS ONE from Public Library of Science
Bibliographic data for series maintained by plosone ().