Economics, Econometrics and Finance
7 years ago

New study reveals hidden correlations in data, changing efficiency calculations.

On Copula Efficiency
Emil Stoica

Paper Summary

Efficiency and copulas are connected. A copula can break down efficiency in a distribution into separate parts: marginal and dependence. When marginals are not Gaussian, linear correlation doesn't show the full correlation. Mutual efficiency sets a limit on how well a copula can predict a distribution's likelihood.

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