CFA Level 2 - Quantitative Analysis Session 3 - Reading 13 Time-Series Analysis - LOS h

CFA Level 2 – Quantitative Analysis, Session 3 – Reading 13

Time-Series Analysis – LOS h

(Practice Questions, Sample Questions)

1. The primary concern when deciding upon a time series sample period is which of the following factors?

A) The length of the sample time period.

B) The total number of observations.

C) Current underlying economic and market conditions. (Explanation: There will always be a tradeoff between the increase statistical reliability of a longer time period and the increased stability of estimated regression coefficients with shorter time periods.

Therefore, the underlying economic environment should be the deciding factor when selecting a time series sample period)

2. Which of the following statements regarding the instability of time-series models is most accurate? Models estimated with:

A) a greater number of independent variables are usually more stable than those with a smaller number.

B) longer time series are usually more stable than those with shorter time series.

C) shorter time series are usually more stable than those with longer time series (Explanation: Those models with a shorter time series are usually more stable because there is less opportunity for variance in the estimated regression coefficients between the different time periods)

3. The main reason why financial and time series intrinsically exhibit some form of nonstationarity is that:

A) serial correlation, a contributing factor to nonstationarity, is always present to a certain degree in most financial and time series.

B) most financial and time series have a natural tendency to revert toward their means.

C) most financial and economic relationships are dynamic and the estimated regression coefficients can vary greatly between periods (Explanation: Because all financial and time series relationships are dynamic, regression coefficients can vary widely from period to period.

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Therefore, financial and time series will always exhibit some amount of instability or nonstationarity)