- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. Time-Series Analysis
- Subject 5. Autoregressive Conditional Heteroskedasticity Models

###
**CFA Practice Question**

Select the correct statement(s) regarding ARCH.

II. If a time series model contains ARCH (1) errors, then coefficients of the regression parameters are not correct.

I. ARCH means the variance of the error term is not constant in all periods.

II. If a time series model contains ARCH (1) errors, then coefficients of the regression parameters are not correct.

A. I only

B. Both are correct

C. None of them

**Explanation:**I: It means the variance of the error term in one period depends on the variance of the error in previous periods.

II: The standard errors for the regression parameters are not correct in this case.

###
**User Contributed Comments**
1

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

dblueroom |
so the coefficients of a model with ARCH errors are still valid? I knew that AR models with serial correlation, coefficients aren't valid. |