Question #38 - Reading 2 Time-Series Analysis

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 18

Status: Unattempted

Correct Answer: A

Shared Context

- Cranwell is aware that the Dickey Fuller test can be used to discover whether a model has a unit root. He is also aware that the test would use a revised set of critical t-values. What would it mean to Bert to reject the null of the Dickey Fuller test (Ho: g = 0) ? A) There is no unit root. B) There is a unit root and the model cannot be used in its current form. C) There is a unit root but the model can be used if covariance-stationary.

Question

When using the root mean squared error (RMSE) criterion to evaluate the predictive power of the model, which of the following is the most appropriate statement?

Answer Choices:

A. Use the model with the highest RMSE calculated using the in-sample data

B. Use the model with the lowest RMSE calculated using the out-of-sample data

C. Use the model with the lowest RMSE calculated using the in-sample data

Explanation

RMSE is a measure of error hence the lower the better. It should be calculated on the out- of-sample data i.e. the data not directly used in the development of the model. This measure thus indicates the predictive power of our model.

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