- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 5. Multiple Regression
- Subject 11. Serial Correlation

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**CFA Practice Question**

Which of the following statements is (are) true with respect to serial correlation?

II. Serial correlation may be identified if an error from one observation has an influence on the error on the subsequent observation.

III. If the Durbin-Watson statistic is significantly greater than 2.0, then this would be an indication that there is a negative correlation among the error terms.

IV. If the Durbin-Watson statistic is equal to 1.0, then this would be an indication that there is no correlation among the error terms.

I. Serial correlation will occur if the dependent variable is a lagged value of one or more of the independent variables.

II. Serial correlation may be identified if an error from one observation has an influence on the error on the subsequent observation.

III. If the Durbin-Watson statistic is significantly greater than 2.0, then this would be an indication that there is a negative correlation among the error terms.

IV. If the Durbin-Watson statistic is equal to 1.0, then this would be an indication that there is no correlation among the error terms.

A. I and II

B. II and III

C. II and IV

**Explanation:**I is incorrect because serial correlation will occur if the one or more of the independent variables is a lagged value of the dependent variable.

IV is incorrect because if there was no correlation among the error terms, then the Durbin-Watson statistic would simply equal to 2.0.

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