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CFA InstituteCourse
CFA Level 2 - Quantitative AnalysisPages
2
Academic year
2023
anon
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CFA Level 2 - Quantitative Analysis Session 3 - Reading 13 Time-Series Analysis - LOS j (Practice Questions, Sample Questions) 1. Barry Phillips, CFA, has the following time series observations from earliest to latest: (5, 6, 5, 7, 6, 6, 8, 8, 9, 11). Phillips transforms the series so that hewill estimate an autoregressive process on the following data (1, -1, 2, -1, 0, 2,0, 1, 2). The transformation Phillips employed is called: A) beta drift. B) first differencing. C) moving average Explanation — (B) Phillips obviously first differenced the data because the1=6-5, -1=5-6, .... 1 = 9 - 9, 2 = 11 - 9 2. Barry Phillips, CFA, has estimated an AR(1) relationship (xt = b0 + b1 × xt-1 + et) and got the following result: xt+1 = 0.5 + 1.0xt + et. Phillips should: A) not first difference the data because b0 = 0.5 < 1.B) not first difference the data because b1 ? b0 = 1.0 ? 0.5 = 0.5 < 1. C) first difference the data because b1 = 1 Explanation — (C) The condition b1 = 1 means that the series has a unit rootand is not stationary. The correct way to transform the data in such aninstance is to first difference the data
3. A time series that has a unit root can be transformed into a time series without a unit root through: A) calculating moving average of the residuals. B) first differencing. C) mean reversion Explanation — (B) First differencing a series that has a unit root creates atime series that does not have a unit root 4. Suppose that the following time-series model is found to have a unit root: Salest = b0 + b1 Sales t-1+ ε t What is the specification of the model if first differences are used? A) (Salest - Salest-1)= b0 + b1 (Sales t-1 - Sales t-2) + ε t. B) Salest = b0 + b1 Sales t-1 + b2 Sales t-2 + ε t. C) Salest = b1 Sales t-1+ ε t Explanation — (A) Estimation with first differences requires calculating thechange in the variable from period to period
CFA Level 2 - Quantitative Analysis Session 3 - Reading 13 Time-Series Analysis - LOS j
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