- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 5. Time-Series Analysis
- Subject 3. Random Walks
CFA Practice Question
In the context of a random walk, the best prediction for the future value is:
A. The current value.
B. The average of past observations.
C. The maximum value in the time series.
D. Not possible due to randomness.
Correct Answer: A
The best prediction for tomorrow is the best value today plus a random error term. However, if a time series is a true random walk, future values are actually not predictable at all.
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