Unit root clarification

CFA Level II Quant

Sartorial December 8, 2022, 4:44pm #1

In plain terms. what is a unit root?

S2000magician December 9, 2022, 3:40am #2

en.wikipedia.org

Unit root

In probability theory and statistics, a unit root is a feature of some stochastic processes (such as random walks) that can cause problems in statistical inference involving time series models. A linear stochastic process has a unit root if 1 is a root of the process's characteristic equation. Such a process is non-stationary but does not always have a trend. If the other roots of the characteristic equation lie inside the unit circle—that is, have a modulus (absolute value) less than one—then t...

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