Question #34

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 16

Status: Unattempted

Correct Answer: A

Part of Context Group: Q33-34
Shared Context
- For this question only, assume that Winston also ran an AR(1) model with the following results: yt = −0.9 − 0.23* yt −1 + et R-squared = 78.3% (0.823) (0.0222) The mean reverting level of this model is closest to: A) 1.16. B) −0.73. C) 0.77.
Question
Based on the results, is there a seasonality component in the data?
Answer Choices:
A. Yes, because the coefficient on yt–4 is large compared to its standard error
B. Yes, because the coefficient on yt is small compared to its standard error
Explanation
The coefficient on the 4th lag tests the seasonality component. The t-statistic is equal to 0.83/0.0186 = 44.62, which is greater than the critical t-value (5% LOS, 2-tailed, dof = 4) = 2.78 (Module 2.3, LOS 2.k) Jason Cranwell, CFA, has hypothesized that sales of luxury cars have grown at a constant rate over the past 15 years.
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