quiz: smoothed data

The use of appraisal data, relative to actual returns, results in: A) correlations that are biased upwards and standard deviations that are biased upwards. B) correlations that are biased upwards and standard deviations that are biased downwards. C) correlations that are biased downwards and standard deviations that are biased downwards Answer and why pls

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Kwonyboy Wrote: ------------------------------------------------------- > C Easy to understand SD is biased down, why correlation also biased down?

it’s kinda the same reason why SD is biased down. if you have daily stock prices that are volatile over the year but say you have commercial property values which only update on a monthly basis you can imagine the graph of the two would not look at all identical. in reality you would imagine that a slump in the market would result in a slump in commercial property values so there should be a strong correlation albeit not a 1:1 relation.

Kwonyboy Wrote: ------------------------------------------------------- > it’s kinda the same reason why SD is biased down. > if you have daily stock prices that are volatile > over the year but say you have commercial property > values which only update on a monthly basis you > can imagine the graph of the two would not look at > all identical. in reality you would imagine that a > slump in the market would result in a slump in > commercial property values so there should be a > strong correlation albeit not a 1:1 relation. Make sense. Thanks, Kwony

C

Nice Kwonyboy… I agree with you.

thank.

C