Doubt about ARMA

AI & Machine learning
1

Course Name: Financial Time Series Analysis for Trading, Section No: 16, Unit No: 4, Unit type: Quiz

Hello, in this quiz you said the best order to start fitting with is ARMA(4,3).

https://i.imgur.com/pcdzno9.png

However, more statistical significance is found at (2, 2) order. What I'm missing?

2

Hi Daniel,



In the plots, you can see that there are other lag variables which are also significant (above the shaded region). Hence the ARMA(4,3) model is suggested. You can of course use the ARMA(2,2) model as well. But to truly say which is better, you will have to backtest and check.



Hope this helps.

3

Thanks for the clarification!