Question #72
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 34
Status: Unattempted
Question
The data below yields the following AR(1) specification: xt = 0.9 – 0.55xt-1 + Et , and the indicated fitted values and residuals. Time xt fitted values residuals 1 1 - - 2 -1 0.35 -1.35 3 2 1.45 0.55 4 -1 -0.2 -0.8 5 0 1.45 -1.45 6 2 0.9 1.1 7 0 -0.2 0.2 8 1 0.9 0.1 9 2 0.35 1.65 The following sets of data are ordered from earliest to latest. To test for ARCH, the researcher should regress:
Answer Choices:
A. (1, 4, 1, 0, 4, 0, 1, 4) on (1, 1, 4, 1, 0, 4, 0, 1)
B. (-1.35, 0.55, -0.8, -1.45, 1.1, 0.2, 0.1, 1.65) on (0.35, 1.45, -0.2, 1.45, 0.9, -0.2, 0.9, 0.35)
C. (1.8225, 0.3025, 0.64, 2.1025, 1.21, 0.04, 0.01) on (0.3025, 0.64, 2.1025, 1.21, 0.04, 0.01, 2.7225)
Explanation
The test for ARCH is based on a regression of the squared residuals on their lagged values.
The squared residuals are (1.8225, 0.3025, 0.64, 2.1025, 1.21, 0.04, 0.01, 2.7225). So,
(1.8225, 0.3025, 0.64, 2.1025, 1.21, 0.04, 0.01) is regressed on (0.3025, 0.64, 2.1025, 1.21,
0.04, 0.01, 2.7225). If coefficient a1 in:
is statistically different from zero, the time series exhibits ARCH(1).