Final_1.pdf

(^2) Beta in this connotation is a nondescript Greek symbol denoting a constant and has
no relationship to the CAPM model.
Moving Average Process (MA)
We now generate another time series from the white noise series above. The
valueytof this time series at time tis given by the rule
yt=et+bet–1 (2.2)
In words, the time series value is the sum of the current white noise realiza-
tion plus beta^2 times the white noise realization one time step ago. Note that
Time Series 17
FIGURE 2.1B White Noise ACF.
FIGURE 2.1A White Noise Series.
10 30 50 70 90
–2
–1
0
1
2
3
0510 15 20
Lag
–0.2
–0.0
0.2
0.4
0.6
0.8
1.0
Auto Correlation