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Basic Question 0 of 3
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 passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
explain the instability of coefficients of time-series models;
describe characteristics of random walk processes and contrast them to covariance stationary processes;
CFA® 2025 Level II Curriculum, Volume 1, Module 5.