UBEQ3013 Time Series Analysis May 2015

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINACE
ACADEMIC YEAR 2015/2016
TUTORIAL 1, 2 & 3(Questions & Answers)
Discussion Questions
1.

Suppose that the daily return series are

Day
rt

1
0.03

2
0.05

3
-0.02

4
-0.01

(a)

Express the daily return lag 2 in terms of the lag operator L.

(b)

Express the daily return lag 3 in terms of the lag operator L.

(c)

At t=4, what is the value of daily return in part (a) and part (b)?

(d)

Write the third difference rt in terms of lag operator.

2.

Explain the concept of stationary.

3.

Suppose we decide to model our data as a drifting random walk:

Yt 0 Yt 1 t

where, assuming t follows IID ~ 0,

2
t

Model 1

Based on Model 1, is the time series of Yt covariance stationary? Why or why not?
4.

The business cycle is the downward and upward movements of gross domestic product. It
refers to the period of expansions and contractions in the level of economic activities
around its long-term growth trend. Does business cycle follow trend or difference
stationary processes? Explain.