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Basic Question 2 of 8
Which statements correctly describe the properties of the error term of a random walk process?
II. Error terms in different periods are not correlated. That is, E(εt εs) = 0 if t ≠ s.
III. The mean of the error term εt is 0. That is, E(εt) = 0.
I. The error term εt has a constant variance.
II. Error terms in different periods are not correlated. That is, E(εt εs) = 0 if t ≠ s.
III. The mean of the error term εt is 0. That is, E(εt) = 0.
User Contributed Comments 1
| User | Comment |
|---|---|
| ericczhang | This is actually true by definition, since we're talking about modeling, not empirical results... |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
describe implications of unit roots for time-series analysis, explain when unit roots are likely to occur and how to test for them, and demonstrate how a time series with a unit root can be transformed so it can be analyzed with an AR model;
describe the steps of the unit root test for nonstationarity and explain the relation of the test to autoregressive time-series models;
CFA® 2025 Level II Curriculum, Volume 1, Module 5.