Question #92
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 43
Status: Unattempted
Correct Answer: A
Question
Alexis Popov, CFA, has estimated the following specification: xt = b0 + b1 × xt-1 + et. Which of the following would most likely lead Popov to want to change the model's specification?
Answer Choices:
A. Correlation(et, et-2) is significantly different from zero
B. b0 < 0
C. Correlation(et, et-1) is not significantly different from zero
Explanation
If correlation(et, et-2) is not zero, then the model suffers from 2nd order serial correlation.
Popov may wish to try an AR(2) model. Both of the other conditions are acceptable in an
AR(1) model.
(Module 2.5, LOS 2.o)
Bert Smithers, CFA, is a sell-side analyst who has been asked to look at the luxury car sector.
He has hypothesized that sales of luxury cars have grown at a constant rate over the past 15
years.
Exhibit 1
b0
0.4563
b1
0.6874
Standard error
0.3745
R-squared
0.7548
Durbin-Watson
1.23
F
12.63
Observations
15
20X1 sales ($bn) 1.05