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Business School
BU5565: Empirical Methods in Finance Research
Workshop (week 28)-Questions
1. Define the concept of non-stationary. Discuss the different types
of non-stationary data.
2. In describing time series, we can use words such as “trend” and
“seasonal”. Describe these concepts.
3. Define differenced variable and its purpose.
4. Define the concept of Autoregressive Process (AR). If I decide to
model profits, as an AR (4) process, how would I write the
underlying function?
5. Discuss how you might use the Autocorrelation Function (ACF)
and the Partial Autocorrelation Function (PACF) to tell the type
of underlying process.
6. A research plot different univariate time series Autocorrelation
function and Partial Autocorrelation function.
6.1) Define the below process:
2
6.2) Define the below process:
7. Describe the steps behind the construction of an ARMA model
using the Box-Jenkins Methodology.
8. Define the following univariate time-series models:
8.1) = −. − +
8.2) = −. − − . − +
8.3) = . − +
8.4) = . − + . − +
8. Open the E-views file “GNPDEF.WF1”. The file contains
information on quarterly observations on U.S. GNP and the
implicit price deflator for GNP for 1947 through 2019.
8.1) Plot the graph of the U.S. GNP series. What can you conclude?
In E-views: Select: Menu View-graph
8.2) In E-views run the Augmented Dickey-Fuller Test (ADF) for the
above series. What can you conclude?
In E-views: Menu View-Unit Root test
8.3) In E-views, generate a new variable log_GNP (In E-views:
Menu Quick, Generate series, log_GNP=log (GNPDEF).
3
8.4) Plot the graph of the log_GNP series. What can you conclude?
8.5) In E-views run the Augmented Dickey-Fuller Test (ADF) for the
above series. What can you conclude?
8.6) Generate the log_Gnp in first differences.
In E-views: Menu Quick, generate series.
8.7) Plot the graph of the first differences of the log_GNP series.
What can you conclude?
8.8) In E-views, run the ADF test in first differences. Use the
log_GNP series. What can you conclude?
8.9) In E-views, run the Phillips-Perron test (In E-views: Menu
View-Unit Root test, select the Phillips-Perron test). What can
you conclude?
