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10 votes
Accepted

Stationarity in Time Series

First, recall that a stochastic process $\{ Y_t \}$ is weakly stationary if : $i)$ The first moment is time independent and finite, i.e. $E(Y_t) \equiv \mu < \infty$ $ii)$ The Variance is time ...
Tony's user avatar
  • 1,262
6 votes
Accepted

Dickey Fuller Test

The problem in the unit root case is that the t-statistic does not follow a t-distribution, not even asymptotically. The issue lies in the distribution of the OLS estimator, $\hat{\phi}$. In the unit ...
Tony's user avatar
  • 1,262
3 votes

Dickey Fuller Test

You seem to be confused about the issue. The standard $t$-statistics does work, the test statistics you will get from estimating the AR model is still $t$-statistics. What does no longer work are the ...
1muflon1's user avatar
  • 56.9k
2 votes

Why is GDP a random variable?

By the same argument, a die roll is also not random,1 because when I measure the outcome, i.e., look at it, that is much more reliably deterministic than the measuring of GDP. The models probably do ...
Giskard's user avatar
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1 vote

Simplest explanation of “Why isn’t an asset that produces recurring reliable dividends worth infinite money?”

Simplest explanation is that this is because money tomorrow is worth less than money today, and 1 dollar infinitely far in future will have (almost) no value today. Most of the value of perpetuity ...
1muflon1's user avatar
  • 56.9k
1 vote

Why is GDP a random variable?

Formally, mathematically, random variable is not actually a variable but a function that assigns possible values from the probability space to the measurable space. Or in short variable $Y$ is a ...
1muflon1's user avatar
  • 56.9k
1 vote

Self-selection problem can be solved in panel data analysis?

Panel data in of itself cannot solve this problem. One way to see this is that there may be some omitted variable that influences both. So even if you observe countries/firms over time if there is an ...
stenborg91's user avatar
1 vote

Granger-Sims causality and subtle differences

Let $\mathbf{X}$ be conditionally iid on $\{0,1\}$ with distribution $(P,1-P)$, with $P$ being a nontrivial random variable. Let $Y_t=\limsup_{T\to\infty} T^{-1}\sum_{i=1}^TX_{t-i}$. Then $\textbf{X}\...
Michael Greinecker's user avatar
1 vote

How to formulate intra-day return?

It is an approximation, but it is appropriate for small values (i.e. returns close to zero, what exactly small means depends on the precision you want to achieve) and it comes from the first order ...
Don's user avatar
  • 166

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