Ordinary Least Squares regression ignores both heteroscedasticity and cross-correlations of abnormal returns; therefore, tests of regression coefficients are weak and biased. A portfolio ordinary least squares (POLS) regression accounts for correlations and ensures unbiasedness of tests, but...

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