If a series, y_t, follows a random walk (with no drift), what is the optimal 1-step ahead forecast for y? A) The current value of y. B) Zero. C) The historical unweighted average of y. D) An exponentially weighted average of previous values of y.

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Quizplus · Accepted Answer

The optimal 1-step ahead forecast for a series following a random walk (with no drift) is the current value of y, as the best predictor of the next value in a random walk process is the current value.

If a Series, Yt, Follows a Random Walk (With No

If a Series, Y_t, Follows a Random Walk (With No