Autocorrelation Function Decay - Quant Trader Interview Question
Difficulty: Medium
Category: Statistics & Regression
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Topics: time-series, autocorrelation, AR-model, ACF, statistics
Problem Description
You are analyzing the daily returns of a stock and observe that the sample Autocorrelation Function (ACF) decays approximately exponentially. Specifically, the autocorrelation at lag 1 is 0.7, at lag 2 is 0.49, at lag 3 is 0.343, and so on.
Which time series model would be the most appropriate to model this behavior?
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