For Exercises 13.1 and 13.2, see page 651; and for 13.3 and 13.4, see pages 655-656.

Question 13.1

13.1 Disney prices.

In Example 13.1, we found the weekly returns of Disney stock to be consistent with a random process. What can we say about the time series of the weekly closing prices?

  1. Using software, construct a time plot of weekly prices. Is the series consistent with a random process? If not, explain the nature of the inconsistency.
  2. The sample mean of the prices is . Count the number of runs in the series. Is your count consistent with your conclusion in part (a)?

13.1

(a) The series is not random; it is increasing over time. (b) There are only 8 runs. Because there should be many more runs than just 8, the process isn’t random. This is consistent with part (a).

disney