Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Deep dive into the quiz with AI chat providers.
We prepare a focused prompt with your quiz and certificate details so each AI can offer a more tailored, in-depth explanation.
Which of the following statements best explains the main setback of the moving average representation of a first-order moving average process, MA(1)?
Other
Community
NNikitesh
A
It does not incorporate observable shocks, so the solution is to use an autoregressive representation
B
It does not show evidence of autocorrelation cutoff
C
It only incorporates observable shocks, so the solution is to use an autoregressive representation
D
The process is highly complicated and can only be carried out using a computer program
Explanation:
The main challenge of a moving average representation of an MA(1) process is the fact that it attempts to estimate a variable in terms of random, unobservable white shocks. The only way to make it more useful for estimation is to invert it into an autoregressive representation because an observable item can now be used.
Comments
Loading comments...