Question 2

ARIMA models can be used as a powerful tool for forecasting. Suppose you would like to predict a series of APPLE (AAPL) stock prices in EViews.

a. Plot the daily closing prices for AAPL stock, along with the ACF and PACF. Explain what each plot shows and which ARIMA model is the most appropriate. [5 marks]

b. Consider the model you selected in part a. Generate a forecast over the last 10 days in the sample and compare it with observed data. Is your forecast accurate? Why? Question 3 Assidenou (2011) shows that major capital market indices (in OECD, Pacific, and Asia regions) are strongly interrelated. This finding is confirmed by results in Table 2. Table 2. Pacific group cointegration test results. [Total Question 2= 20 marks] [5 marks]

c Plot forecasts from an ARIMA(1,0,0) model with drift and compare these to part b. [5 marks]

d Can you conclude from your findings that a price is well represented by a random walk? Explain why. [5 marks]