Which of the following are the reasons why testing for non-stationarity is necessary for a...
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Finance
Which of the following are the reasons why testing for non-stationarity is necessary for a financial time series?
(I). Persistence of shocks will die out for non-stationary series. (II). If two variables are non-stationary and trending over time, a regression of one on the other could have a high R2 even if the two are totally independent. (III). If the variables in the regression model are not stationary, then it can be proved that the standard assumptions for asymptotic analysis will not be valid.
Choose from (a), (b), (c), (d).
Select one:
a)
II and III
b)
I and III
c)
II only
d)
All of them.
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