Time Series Analysis Stationarity and Differencing 2

Question 1

What does the Augmented Dickey-Fuller test add compared to the simple Dickey-Fuller test?

Accepted Answer

Lagged difference terms to account for serial correlation in residuals

Answer

A seasonal component

Answer

Multiple unit root testing

Answer

Variance stabilization

Question 2

A time series with a deterministic trend is best handled by:

Accepted Answer

Detrending (subtracting a fitted trend)

Answer

First differencing

Answer

Log transformation alone

Answer

Seasonal decomposition

Question 3

What is the Phillips-Perron (PP) test used for?

Accepted Answer

Testing for unit roots with non-parametric correction for serial correlation

Answer

Testing for seasonality

Answer

Measuring forecast accuracy

Answer

Detecting outliers

Question 4

If a time series requires differencing twice (d=2) to become stationary, it is said to be:

Accepted Answer

Integrated of order 2, I(2)

Answer

Integrated of order 1, I(1)

Answer

Stationary in levels

Answer

Seasonally integrated

Question 5

Which visual tool is most helpful for an initial stationarity assessment?

Accepted Answer

Time series plot showing mean and variance over rolling windows

Answer

Histogram of values

Answer

Scatter plot of y vs x

Answer

Box plot of all values

Question 6

What is 'cointegration' in the context of multiple non-stationary time series?

Accepted Answer

Two non-stationary series share a long-run equilibrium relationship

Answer

Both series are stationary

Answer

The series have identical variances

Answer

Differencing one series makes the other stationary