Estimating the Correlation in Bivariate Normal Data With Known Variances and Small Sample Sizes

We consider the problem of estimating the correlation in bivariate normal data when the means and variances are assumed known, with emphasis on the small sample case. We consider eight different estimators, several of them considered here for the first time in the literature. In a simulation study, we found that Bayesian estimators using the uniform and arc-sine priors outperformed several empirical and exact or approximate maximum likelihood estimators in small samples. The arc-sine prior did better for large values of the correlation. For testing whether the correlation is zero, we found that Bayesian hypothesis tests outperformed significance tests based on the empirical and exact or approximate maximum likelihood estimators considered in small samples, but that all tests performed similarly for sample size 50. These results lead us to suggest using the posterior mean with the arc-sine prior to estimate the correlation in small samples when the variances are assumed known.