Random variation often looks like a trend. The response in this exercise has n = 120 observations,
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This type of random process is known as a random walk; the next value is the prior value plus random variation.
(a) Graph Yt versus t and ft a simple linear trend model. Without checking conditions for the SRM, does the slope appear to be statistically significant?
(b) According to the ft of the linear trend model, give a 95% confidence interval for E(Yt - Yt -1)? Does that interval agree with the structure of a random walk?
(c) How can one check that the linear trend model is not appropriate for these data?
(d) Do the prices of Exxon-Mobil (Exercise 33) appear as though they were produced by a random walk?
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Related Book For
Statistics For Business Decision Making And Analysis
ISBN: 9780321890269
2nd Edition
Authors: Robert Stine, Dean Foster
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