A cautionary note on computing conditional from unconditional correlations

Jonas Kaiser and Walter Krämer

Economics Letters, 2011, vol. 111, issue 2, 176-179

Abstract: We show that some care is needed when inferring true unconditional correlations from observed conditional correlations, which is a frequent problem in empirical finance and elsewhere. We give a general formula for the relationship between the two and demonstrate its importance in the context of the bivariate t-distribution.

Keywords: Conditional; correlation; t-distribution; Stock; returns (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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