Time Series Series

segalm

In the example for autocorellations in both Schweser and CFAI, they list the lags and their autocorrelations, my question is, for 59 observations, they only list lags 1-4, why don't we have to test ALL the observations for autocorrelation?

jacksparrow

The 1-4 lags are possible explanatory variables ( think degrees of freedom ).

The observations are the thing that's going to create your sample for the regression test , and the more observatons ,the better, as your mean standard error will reduce for the same sum of squared errors.

Generally in regression problems you have a few explanatory variables ( like 2 or 3 , not more than 7 or 8 in APT ) .

But observations usually at least 30 , again more the better

huangxiaoxie

Appreciate the response, I am somewhat unclear in that case - what is a lag then? I thought it was just the IVs at each point in time...

WarrenB1

We should see significance of autocorrelations for ALL lagged variables. If in some examples they are showing only 4, assumes that autocorrelations for other lags is not significant and they chose not to print it.

I have never done any regression, but I guess, when you actually do regression using a software, it will show autocorrelations for ALL lagged variables and not only first few. Then based on their significance, you may choose to add/subtract your number of independent variables.

hassan

I see so when they say here are lags 1-4, they just mean, here are the first four data points?

ap0258

Yes, first 4 data points starting backwards from today. Lag1 being that variable's past value at time t-1, Lag 2 being that same variables past value at time t-2 and so on...