Question #93 - Reading 2 Time-Series Analysis

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 44

Status: Unattempted

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of 101 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? A) Correlation(et, et-2) is significantly different from zero. B) b0 < 0. C) Correlation(et, et-1) is not significantly different from zero. 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

Question

If his assumption about a constant is correct, which of the following models is most appropriate for modeling these data?

Answer Choices:

A. LuxCarSalest = b0 + b1LuxCarSales(t-1) + et

B. ln(LuxCarSales) = b0 + b1(t) + et

C. LuxCarSales = b0 + b1(t) + et

Explanation

Whenever the rate of change is constant over time, the appropriate model is a log- linear trend model. A is a linear trend model and C is an autoregressive model.

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