Question #50
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 23
Status: Unattempted
Question
Suppose you estimate the following model of residuals from an autoregressive model: εt 2 = 0.25 + 0.6ε2 t-1 + µt, where ε = ε^ If the residual at time t is 0.9, the forecasted variance for time t+1 is:
Answer Choices:
A. 0.790
B. 0.736
C. 0.850
Explanation
The variance at t = t + 1 is 0.25 + [0.60 (0.9)2] = 0.25 + 0.486 = 0.736. See also, ARCH
models.