Q1).

1. There is little difference between traditional econometrics and financial econometrics beyond emphasis. However, financial data have some defining characteristics that shape the econometric approaches that can be applied. Briefly explain five (5) of these (stylised facts) characteristics.
2. State two conditions that must apply for a stationary time series process.
3. State three (3) formal tests that are used to establish stationarity.
4. Distinguish between autocorrelation function (ACF) and partial autocorrelation functions (PACF). What are they used for in time series analysis?
5. Consider a series of values for the spot and futures prices of a given commodity. In the context of these series, explain the concept of cointegration. Discuss how a researcher might test for cointegration between the variables using the EngleGranger approach. Explain also the steps involved in the formulation of an error correction model.

Compare and contrast the EngleGranger and Johansen methodologies for testing for cointegration and modelling cointegrated systems. Which, in your view, represents the superior approach and why