CMA Statistical Methods & Forecasting 3

Question 1

Which of the following is the best measure of forecast accuracy that penalizes large errors more heavily?

Accepted Answer

Mean Squared Error (MSE)

Answer

MSE squares the errors before averaging, giving disproportionately higher weight to large forecast deviations.

Question 2

In multiple regression, the Variance Inflation Factor (VIF) is used to diagnose:

Accepted Answer

Multicollinearity

Answer

A VIF above 10 (or 5, depending on convention) suggests problematic multicollinearity between predictor variables.

Question 3

A market analyst applies the Box-Jenkins methodology. The correct sequence of steps is:

Accepted Answer

Identify → Estimate → Diagnose → Forecast

Answer

The Box-Jenkins ARIMA process follows: model identification, parameter estimation, diagnostic checking, then forecasting.

Question 4

If the autocorrelation function (ACF) of a time series cuts off sharply after lag q while the PACF decays gradually, the series likely follows:

Accepted Answer

MA(q)

Answer

An MA(q) process has an ACF that cuts off after q lags and a PACF that tails off gradually.

Question 5

A confidence interval for a forecast that widens as the forecast horizon extends indicates:

Accepted Answer

Increasing uncertainty further into the future

Answer

Forecast uncertainty compounds over time, so prediction intervals naturally widen at longer horizons.

(CMA) Certified Market Analyst Practice Test