Appraisal data - 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.
less voatile -can have higher correlation right- whats the rationale for appraisal data having less correlation with asset values?
Thanks
This is the same issue with volatility as with conditional correlation on another topic but now with different object. Appraisal data are mostly used for infrequent traded assets as some real estates. One of the positive features of level 3 is redundant study material so it’s easier to remember an answering path.
Thanks Flashback, I think its my interpretation of appraisal data which could let to incorrect interpretation of correlations
I think it’s less complicated than your question. 100 people = 100 heights, 100 weights, and 100 BMIs. If you only have 3 people, and you use their data to fill in 97 other BMIs, the standard dev HAS to be less. With 3 real people and 97 “appraised” people, you’re less able to predict the weight of a 4th person based on their height.