Economics

“” Another bias results from the use of appraisal data in the absence of market transaction data. Appraisal values tend to be less volatile than market determined values for identical assets. The result is that calculated correlations with other assets tend to be biased upward in absolute value compared with the true correlations, and the true variance of the asset is biased downward.""

Q : With respect to his answer to Brown’s question, O’Reilly most likely is:

A. incorrect, because high-frequency data tend to produce lower correlation estimates. B. incorrect, because high-frequency data are less sensitive to asynchronism. C. correct.

???

I can’t be sure because you didn’t post the whole question but high frequency data are more sensitive to asynchronism and output lower correlations so its probably A.

C

Appraisal data is usually low frequency. This will bias vol downwards and correlations upwards.