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Homework answers / question archive / Sean, an equity analyst, is trying to forecast the Australian equity market return
Sean, an equity analyst, is trying to forecast the Australian equity market return. He is considering using the last 7 years of monthly returns to build a model. His colleague John disagrees with him and argues that Sean should use at least 20 years of historical data. Sean has some concerns of John's suggestion. Which of the following is not a valid concern of Sean? Select one: O a. If the underlying equity market return is stationary, the longer sample period can introduce more noise into statistical estimation b. If the underlying equity market return is nonstationary, the longer sample period can reduce the estimation accuracy c. Other market factors, such as interest rate, are vastly different 20 years ago d. Regulation and technology have changed significantly over the last 20 years
If the underlying equity market Return is non stationary in nature, than longer simple price will be helping in estimation accuracy because it will be determining higher degree of risk and fluctuation during a longer time period, and hence longer sample period will be increasing the estimation accuracy.
All the other options are false.
correct answer is option (B) If the underlying equity market return is non stationary, the longee sample period can reduce the estimation accuracy.
