Question #35 - Reading 2 Time-Series Analysis

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 17

Status: Unattempted

Shared Context

- Based on the results, is there a seasonality component in the data? 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. C) No, because the slope coefficients in the autoregressive model have opposite signs. Jason Cranwell, CFA, has hypothesized that sales of luxury cars have grown at a constant rate over the past 15 years.

Question

After discussing the above matter with a colleague, Cranwell finally decides to use an autoregressive model of order one i.e. AR(1) for the above data. Below is a summary of the findings of the model: b0 0.4563 b1 0.6874 Standard error 0.3745 R-squared 0.7548 Durbin Watson 1.23 F 12.63 Observations 180 Calculate the mean reverting level of the series.

Answer Choices:

A. 1.26

B. 1.46

C. 1.66

Explanation

The formula for the mean reverting level is b0/(1-b1) = 0.4563/(1-0.6874)=1.46

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