- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 5. Time-Series Analysis
- Subject 2. Autoregressive (AR) Time-Series Models
CFA Practice Question
The AR(1) model predicts if xt is at its mean-reverting level, then
II. xt = xt-1.
III. xt = xt+1.
IV. xt = b0 + b1xt.
I. xt = b0/(1 - b1).
II. xt = xt-1.
III. xt = xt+1.
IV. xt = b0 + b1xt.
Correct Answer: I, II, III and IV
If a time series is currently at its mean-reverting level, then the AR(1) model predicts that the value of the time series will be the same in the next period.
User Contributed Comments 3
| User | Comment |
|---|---|
| bmeisner | How is II correct? Just because a series is at it's mean-reverting level in Xt doesn't mean it was at the mean-reverting level in the previous period Xt-1. |
| ucsbdan | See P389 of the textbook: "If a time series is currently at its mean-reverting level, then the model predicts that the value of the time series will be the same in the next period." So II is correct. |
| rhardin | That's not what bmeisner was saying... the question does not tell us if the series was at a mean reverting level last period (which would thus mean that it is mean reverting this period). So, bmeisner is correct because the question never told us if the series was at the mean reverting level last period. |