DW test question

The answer is wrong, as jpsi1 explained.

yes, i’m assuming CFAI has it wrong here in the solutions.

jpsi1 Wrote: ------------------------------------------------------- > Guys, this sample is a total garbage. > If you fail to reject the null hypothesis of no > positive serial correlation, then the hypothesis > stands, meaning there is no positive correlation. > The rest of the explanation contradicts that > statements. Whoever was typing these bull was > under heavy influence or smthg. this is wrong

This is wrong. prophets Wrote: ------------------------------------------------------- > jpsi1 Wrote: > -------------------------------------------------- > ----- > > Guys, this sample is a total garbage. > > If you fail to reject the null hypothesis of no > > positive serial correlation, then the > hypothesis > > stands, meaning there is no positive > correlation. > > The rest of the explanation contradicts that > > statements. Whoever was typing these bull was > > under heavy influence or smthg. > > > this is wrong

failing to reject a hypothesis does not mean the opposite is true. I rea only CFAI and thought nothin wrong of this question (but I also got it right…)

Compute the DW statistic first. DW = 2(1-r) … if: DW between 0-2 test for positive serial correlation DW is 2 no serial correlation DW 2+ test for negative serial correlation FYI You are almost always testing for positive serial correlation. The test is done with the Durbin-Watson table. You look up DW-critical by finding ‘K’, which is the # of independent variables and n. Make note of the dl, and du for whatever K and N you have used. Now look at the DW you computed, is it below dl that you just found in the table? If it is, then you can reject H0 that no positive serial correlation exists in favor of Ha: Positive serial correlation exists. If the DW you computed is between dl and du, then its inconclusive, and if its over du then you fail to reject the null.

I think this is one of the topics which is covered way better in Schweser than in CFA material. CFA text covers only part of the DW test and key points are left in the footnote. Very sneaky or just poor judgment on their part.