1 -Consider the following 3 models that a researcher suggests might be a reasonable model of stock market prices
Yt = Yt -1 +Ut
Yt = 0.5 Yt -1 + Ut
Yt = 0.8 Yt -1 + Ut
a) What classes of models are these examples of ?
b) What would the autocorrelation function for each of these processes look like ? (only consider the shape no calculation necessary)
c) Which model is more likely to represent stock market prices from a theoretical perspective , and why ? if any of the three models truly represented the way stock market prices move, which could potentially be used to make money by forecasting future values of the series?
d) By making a series of successive substitutions or from your knowledge of the behavior of these types of processes ,consider the extent of persistence of shocks in the series in each case
2 - What are the differences between autoregressive and moving average models
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Solution to problems regarding time series model: Autoregressive models, Moving average models, Q Test, forecasting, and difference between autoregressive and moving average models