Question #69
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 33
Status: Unattempted
Correct Answer: A
Question
To qualify as a covariance stationary process, which of the following does not have to be true?
Answer Choices:
A. Covariance(xt, xt-2) = Covariance(xt, xt+2)
B. E[xt] = E[xt+1]
C. Covariance(xt, xt-1) = Covariance(xt, xt-2)
Explanation
If a series is covariance stationary then the unconditional mean is constant across periods.
The unconditional mean or expected value is the same from period to period: E[xt] =
E[xt+1]. The covariance between any two observations equal distance apart will be equal,
e.g., the t and t-2 observations with the t and t+2 observations. The one relationship that
does not have to be true is the covariance between the t and t-1 observations equaling
that of the t and t-2 observations.