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Level II
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Quantitative Methods
Quantitative Methods
Hard
An analyst runs a Dickey-Fuller test on monthly stock prices and obtains a test statistic of -1.74. The 5% critical value from the Dickey-Fuller distribution is -2.86. The analyst should most likely conclude that the stock price series:
A
Has a unit root and should be first-differenced before modeling
B
Is covariance stationary and can be modeled with an AR process
C
Requires an augmented Dickey-Fuller test before any conclusion
D
Is explosive and should not be modeled with AR methods
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Tags
#dickey-fuller
#unit-root
#non-stationarity
#first-differencing
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