Angela Martinez, an energy sector analyst at an investment bank, is concerned about the future level of oil prices and how it might affect portfolio values. She is considering whether to recommend a hedge for the bank portfolios exposure to changes in oil prices. Martinez examines West Texas Intermediate (WTI) monthly crude oil price data, expressed in US dollars per barrel, for the 181-month period from August 2000 through August 2015. The end-of-month WTI oil price was $51.16 in July 2015 and $42.86 in August 2015 (Month 181). After reviewing the time-series data, Martinez determines that the mean and variance of the time series of oil prices are not constant over time. She then runs the following four regressions using the WTI time-series data. Linear trend model: Oil pricet = b0 + b1t + et Log-linear trend model: ln Oil pricet = b0 + b1t + et AR(1) model: Oil pricet = b0 + b1Oil pricet1 + et AR(2) model: Oil pricet = b0 + b1Oil pricet1 + b2Oil pricet2 + et Exhibit 1 presents selected data from all four regressions, and Exhibit 2 presents selected autocorrelation data from the AR(1) models. Exhibit 1 Crude Oil Price per Barrel, August 2000August 2015 Regression Statistics (t-statistics for coefficients are reported in parentheses) Linear Log-Linear AR(1) AR(2) R2 0.5703 0.6255 0.9583 0.9656 Standard error 18.6327 0.3034 5.7977 5.2799 Observations 181 181 180 179 DurbinWatson 0.10 0.08 1.16 2.08 RMSE 2.0787 2.0530 Coefficients: Intercept 28.3278 3.3929 1.5948 2.0017 (10.1846) (74.9091) (1.4610) (1.9957) t (Trend) 0.4086 0.0075 (15.4148) (17.2898) Oil Pricet1 0.9767 1.3946 (63.9535) (20.2999) Oil Pricet2 0.4249 (6.2064)