- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. Time-Series Analysis
- Subject 3. Random Walks and Unit Roots

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**CFA Practice Question**

Which statement is correct?

A. A random walk has a finite variance but no finite mean.

B. A random walk has a finite mean but no finite variance.

C. A random walk has no finite mean or finite variance.

**Explanation:**Since b

_{0}= 0 and b

_{1}= 1, the meant-reverting level of a random walk is b

_{0}/(1-b

_{1}) = 0/0. Therefore its mean is not defined.

The variance of x

_{t}is (t - 1) σ

^{2}so there is no upper bound as t grows large.

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