Explanation:
For a time series to be covariance stationary, it must satisfy three conditions:
Option C correctly describes the third requirement - that the autocovariance depends only on the displacement τ, not on the specific time period. This means that the relationship between observations separated by τ periods remains the same regardless of when in the time series we measure it.
Why the other options are incorrect:
Ultimate access to all questions.
A risk manager at a major global bank is conducting a time series analysis of equity returns. The manager wants to know whether the time series is covariance stationary. Which of the following statements describes one of the requirements for a time series to be covariance stationary?
A
The distribution of a time series should have a kurtosis value near 3.0, ensuring no fat tails will distort stationarity.
B
The distribution of a time series should have a skewness value near 0, so that its mean will fall in the center of the distribution.
C
The autocovariance of a covariance stationary time series depends only on displacement, τ, not on time.
D
When the autocovariance function is asymmetric with respect to displacement, τ, forward looking stationarity can be achieved.
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