A
Acadi
Fi
Courses
Knowledge Hub
Community
Practice
Pricing
About
Search
⌘K
Question Bank
/
FRM
/
Part I
/
Quantitative Analysis
Quantitative Analysis
Hard
Two stock prices, Xt and Yt, are both non-stationary (I(1)). An analyst runs a regression of Yt on Xt and tests the residuals for stationarity using the ADF test, finding them stationary at the 5% level. This result most likely indicates that:
A
Xt and Yt are cointegrated, and the spread between them is mean-reverting
B
The regression is spurious and the results should be discarded
C
Both series are actually stationary and were incorrectly classified
D
The ADF test has low power and the result is unreliable for non-stationary series
Select an answer to continue
Tags
#cointegration
#engle-granger
#adf-test
#mean-reversion
More Quantitative Analysis questions
Start full Part I quiz