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Basic Question 3 of 7
Which of the following is the most appropriate approach to determine if the time series has a unit root?
A. Performing a Dickey-Fuller test.
B. Modeling the first differences of the time series.
C. Performing a log-linear transformation.
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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.