The moving-average model provides reasonable predictions only under certain scenarios. Use the seasonally adjusted (SA) consumer loan time series of Exercise 13.28 (page 712) to investigate the performance of the moving-average model in the presence of a strong trend.

(a) Calculate moving averages for spans of k = 20 and 50. Superimpose the moving averages (on a single time series plot) on

a plot of the original time series.

(b) As the span increases, what do you observe about the plot of the moving averages?

(c) At the stock market analysis Web site, it is stated that moving averages “are best suited for trend identification and trend following purposes, not for prediction.” Explain  whether or not your results from part (a) are consistent with this claim.


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