Q1. When is an asset market efficient? Q2. What does market efficiency imply for predictability? Q3. What are the three forms of market efficiency? Q4. Describe the random walk model with and without drift for the log price of a stock. Q5. Explain why an i'd (i.e. white noise) process i has zero autocorrelations at all lags. Le. 7 = 0 for s =1,2,3,-.. etc. 06. You estimated an MA(1) model for the returns on a stock price index , and obtained the following F =0.2 0.8u u, where #, is a white noise process. Find the mean, variance and autocorrelation function for this process. Is * a stationary process? Is * a white noise process? Q7. Suppose ), is a random walk process with drift parameter C. Show that ), is a non-stationary process and does that depend on whether c=0 or c# 0. Q8. What are the differences between autoregressive and moving average models? 09. Consider the following three models that a researcher suggests might be a reasonable model of stock market prices 1 + (1) y = 0.5y + (2) y = 0.8u + 1-1 (3) (a) What classes of models are these examples of? (b) What would the autocorrelation function for each of these processes look like? (You do not need to calculate the ACF's, simply describe what the ACF's will look like in each case)