Hi all,

I was running the adf test in R.


CODE 1:

adf.test(data$LOSS)

        Augmented Dickey-Fuller Test

data:  data$LOSS
Dickey-Fuller = -1.9864, Lag order = 2, p-value = 0.5775
alternative hypothesis: stationary


CODE 2:
 adf.test(diff(diff(data$LOSS)))

        Augmented Dickey-Fuller Test

data:  diff(diff(data$LOSS))
Dickey-Fuller = -6.9287, Lag order = 2, p-value = 0.01
alternative hypothesis: stationary



Is my interpretation correct:

The original data( in code 1) is not stationary

the twice differenced data (in code 2) is *stationary* and the order of the
corresponding ARMA(p,q) model are *p=2* (as lag order in the output is 2)
and *q=0*;.i.e. the *AR coefficients for X(t-1) and X(t-2) are significant*,
while those of X(t-3) onwards are insignificant.


Appreciate your help.
Thanks,
Preetam


-- 
Preetam Pal
(+91)-9432212774
M-Stat 2nd Year,                                             Room No. N-114
Statistics Division,                                           C.V.Raman
Hall
Indian Statistical Institute,                                 B.H.O.S.
Kolkata.

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