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Basic Question 2 of 7
The Dickey-Fuller test shows that in order to test if a time series xt is a random walk with drift, we should conduct
A. a t-test of null hypothesis that b1 - 1 = 0, using conventional critical values for a t-test.
B. a t-test of null hypothesis that b1 - 1 = 0, using a revised set of critical values for a t-test. These revised values are larger than the conventional critical values.
C. a t-test of null hypothesis that b1 - 1 = 0, using a revised set of critical values for a t-test. These revised values are smaller than the conventional critical values.
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
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.