Question #56 - Reading 2 Time-Series Analysis

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 27

Status: Unattempted

Correct Answer: A

Shared Context

- Is Smith correct or incorrect regarding Concerns 1 and 2? A) Correct on both Concerns. B) Only correct on one concern and incorrect on the other. C) Incorrect on both Concerns.

Question

The most recent change in foreclosure share was +1 percent. Smith decides to base her analysis on the data and methods provided in Exhibit 4 and Exhibit 5, and determines that the two-step ahead forecast for the change in foreclosure share (in percent) is 0.125, and that the mean reverting value for the change in foreclosure share (in percent) is 0.071. Is Smith correct?

Answer Choices:

A. Smith is correct on both the forecast and the mean reverting level

B. Smith is correct on the mean-reverting level for forecast of change in foreclosure share only

C. Smith is correct on the two-step ahead forecast for change in foreclosure share only

Explanation

Forecasts are derived by substituting the appropriate value for the period t-1 lagged value. ΔForeclosure Sharet = 0.05 + 0.25(ΔForeclosure Sharet-1) = 0.05 + 0.25(1) = 0.30 So, the one-step ahead forecast equals 0.30%. The two-step ahead (%) forecast is derived by substituting 0.30 into the equation. ΔForeclosure Sharet+1 = 0.05 + 0.25(0.30) = 0.125 Therefore, the two-step ahead forecast equals 0.125%.

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