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Basic Question 1 of 6

If we use an AR (1) model to specify a time series (quarterly data), the correct equation that includes a seasonal lag is:

A. xt = b0 + b1 xt-1 + εt.
B. xt = b0 + b1 xt-1 + b2 xt-4 + εt.
C. xt = b0 + b1 xt-1 + b2 xt-4.
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User Contributed Comments 1

User Comment
akirchner1 'Quarterly' is key here which is why t-4 is used. Can't forget the error term though.
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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

Tamara Schultz

Learning Outcome Statements

explain how to test and correct for seasonality in a time-series model and calculate and interpret a forecasted value using an AR model with a seasonal lag;

CFA® 2025 Level II Curriculum, Volume 1, Module 5.