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Suppose that the simple return of a quarterly stock index takes the following form: R t = t 0 . 5 t 1 + 0
- Suppose that the simple return of a quarterly stock index takes the following form:
Rt = t 0.5t1 + 0.5t2, = 1
where {t} is a white noise series with mean zero.
- Is the simple return of the stock index a white noise process? Show all working.
- b. Is the simple return of the stock index covariance-stationary? Is it weakly dependent?
- c. What is the difference between a white noise process and a weakly dependent process? Discuss.
- d. Compute the lag-1 and lag-2 autocorrelations of the return series. Show all working
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