- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. Time-Series Analysis
- Subject 2. Autoregressive (AR) Time-Series Models

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**CFA Practice Question**

The AR(1) model predicts that

II. If its current value is below b

III. If its current value is above b

IV. If a time series is covariance-stationary then it has a finite mean-reverting level.

I. If its current value is b

_{0}/(1 - b_{1}), the time series will stay the same.II. If its current value is below b

_{1}/(1 - b_{0}), the time series will increase.III. If its current value is above b

_{1}/(1 - b_{0}), the time series will decrease.IV. If a time series is covariance-stationary then it has a finite mean-reverting level.

A. All of them

B. I and IV

C. I, II and III

**Explanation:**II and III: the level should be b

_{0}/(1 - b

_{1}).

IV: All covariance-stationary time series have a finite mean-reverting level.

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**User Contributed Comments**
7

User |
Comment |
---|---|

tim2 |
ohh tricky! |

Yurik74 |
just need to be attentive : ( |

sg2006 |
why isn't ii ans iii correct? If below the level the next value will go up and vice versa |

ericczhang |
...that's just being cheeky. |

dalue |
I have the same question as sg2006. Why not II and III? |

pmdallman |
Very cheeky indeed |

pmdallman |
Dalue and sg2006 - look at the order of b1 and b0 in II and III - they've been inverted and are no longer in the right sequence |