Understanding Autoregressive Models

Very Easy Time-series Analysis Autoregressive Models

A financial analyst is studying the monthly returns of a stock over the last three years. The analyst suspects that the current month's return may depend on returns from previous months. To model this dependency, the analyst considers using an Autoregressive (AR) model.

Which of the following statements is true regarding Autoregressive Models?

An Autoregressive model of order 1 (AR(1)) uses only the immediately preceding value to predict the current value.

An Autoregressive model assumes that values are independent of each other.

An Autoregressive model can only be used for time series data with a constant mean.

Hint

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