The Journal of Finance

The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.

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

Published: 12/01/1989   |   DOI: 10.1111/j.1540-6261.1989.tb02664.x

YASH P. ANEJA, RAMESH CHANDRA, ERDAL GUNAY

This paper presents a portfolio approach to estimating the average correlation coefficient of a group of stocks which 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.