Posted: July 2nd, 2022

What are the factors that influence the accuracy of correlation estimates and is there a reason why market participants may have incentive to purposefully manipulate correlation measures?

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Each Part is to be ~150 words
Part A
1.Answer the following question: What are the factors that influence the accuracy of correlation estimates and is there a reason why market participants may have incentive to purposefully manipulate correlation measures?
2.Thinking about what you learned in the Correlation/Causation Big Picture cartoons, provide an example of when you encountered misinterpretations of this issue impacting decision making (If you are unable to think of an example from your own experience, you may research current events related to this topic.)
Part B
1.What inflates/deflates a valuation? Which calculation variables are valuations most sensitive to? Which variables in valuation calculation are most subject to manipulation?
2.Find an example of an Initial Public Offering (IPO) in which the stock price either rose or dropped more than 10% on opening day. (You will need to research this.) Post your example’s link to the discussion. Part C
1.What are the strengths of CAPM? What are the weaknesses of CAPM?
2.Using the company that you chose for your project, argue in favor of using one pricing model other than CAPM to calculate the discount rate. Why did you choose this model? Explicitly list the risk factors you would include. (For example: GDP changes, energy prices, etc.)

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