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1. What is the first thing to do when analysis financial data. 2. What is over...

1. What is the first thing to do when analysis financial data.

2. What is over and under differencing?

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Answer #1

1: The financial statements need to be gathered and authenticated before analysis begins. We need to garner data from Cash flow statement, Income statement and balance sheet.

2: We need to first difference the log or level variables in order to transform the prices or interest rates into astationary series. Some series however do not require this and when it is done, it is called over differencing. Conversely when the series require differencing and are not processed such, it is called under differencing.

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