Question #8
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 3
Status: Unattempted
Correct Answer: A
Question
The primary concern when deciding upon a time series sample period is which of the following factors?
Answer Choices:
A. The length of the sample time period
B. Current underlying economic and market conditions
C. The total number of observations. Diem Le is analyzing the financial statements of McDowell Manufacturing. He has modeled the time series of McDowell's gross margin over the last 16 years. The output is shown below. Assume 5% significance level for all statistical tests. Autoregressive Model Gross Margin – McDowell Manufacturing Quarterly Data: 1st Quarter 1985 to 4th Quarter 2000 Regression Statistics R-squared 0.767 Standard error of forecast 0.049 Observations 64 Durbin-Watson 1.923 (not statistically significant) Coefficient Standard Error t-statistic Constant 0.155 0.052 ????? Lag 1 0.240 0.031 ????? Lag 4 0.168 0.038 ?????
Explanation
There will always be a tradeoff between the increase statistical reliability of a longer time
period and the increased stability of estimated regression coefficients with shorter time
periods. Therefore, the underlying economic environment should be the deciding factor
when selecting a time series sample period.
(Module 2.2, LOS 2.h)
Diem Le is analyzing the financial statements of McDowell Manufacturing. He has modeled
the time series of McDowell's gross margin over the last 16 years. The output is shown
below. Assume 5% significance level for all statistical tests.
Autoregressive Model
Gross Margin – McDowell Manufacturing
Quarterly Data: 1st Quarter 1985 to 4th Quarter 2000
Regression Statistics
R-squared
0.767
Standard error of forecast
0.049
Observations
64
Durbin-Watson
1.923 (not statistically significant)
Coefficient
Standard Error
t-statistic
Constant
0.155
0.052
?????
Lag 1
0.240
0.031
?????
Lag 4
0.168
0.038
?????
Autocorrelation of Residuals
Lag
Autocorrelation
Standard Error
t-statistic
1
0.015
0.129
?????
2
–0.101
0.129
?????
3
–0.007
0.129
?????
4
0.095
0.129
?????
Partial List of Recent Observations
Quarter
Observation
4th Quarter 2002
0.250
1st Quarter 2003
0.260
2nd Quarter 2003
0.220
3rd Quarter 2003
0.200
4th Quarter 2003
0.240
Abbreviated Table of the Student's t-distribution (One-Tailed Probabilities)
df
p = 0.10
p = 0.05
p = 0.025
p = 0.01
p = 0.005
50
1.299
1.676
2.009
2.403
2.678
60
1.296
1.671
2.000
2.390
2.660
70
1.294
1.667
1.994
2.381
2.648