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CFA Level 2
Quantitative Methods

Understanding Trend Model Coefficients

Very Easy Time-series Analysis Trend Models

Consider a time-series dataset representing the quarterly sales of a company over five years. The sales data has shown a consistent upward trend throughout this period. To analyze this trend, a simple linear trend model is applied, which can be represented as:

$$ Y_t = eta_0 + eta_1 t + ext{e}_t $$

Where:

  • $$ Y_t $$ is the sales at time $t$
  • $$ eta_0 $$ is the intercept of the regression model
  • $$ eta_1 $$ represents the trend coefficient, indicating the average change in sales per time period
  • $$ ext{e}_t $$ is the error term

Given this information, what can we conclude about the component represented by $$ eta_1 $$ in this trend model?

Hint

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