Financial Risk Manager Part 1
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An FRM exam candidate wishes to determine the type of variation in a time series and singles out non-seasonal variation while at the same time discarding seasonal variation. The candidate's approach:
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NNikitesh
A
Is appropriate since seasonality has minimal impact on most phenomena, including economic ones
B
Is appropriate because seasonal variation is very easy to establish without the need for intensive statistical analysis
C
Is inappropriate because seasonality may account for a large part of the variation
D
Is inappropriate because non-seasonal variation is irrelevant while studying economic relationships
Explanation:
The correct answer is C. It's common to find economic researchers centering on non-seasonal variation at the expense of seasonality. However, disregarding the possibility of seasonal variation can be quite irresponsible because a large part of the variation in a time series could actually be seasonal. Seasonal patterns are important in many economic and financial time series, and ignoring them can lead to incorrect conclusions about the underlying trends and relationships.
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