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write down and explain the formal definition of stationarity for a financial time series process

write down and explain the formal definition of stationarity for a financial time series process

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Stationary time series (for a financial time series process)

A stationary time series is one whose statistical properties such as mean, variance, autocorrelation, etc. are all constant over time. A stationary time-series is an outcome of a stationary process.

It is possible to formally test whether a time series is stationary or not. Statistical tests of the null hypothesis that a time series is non-stationary against the alternative that it is stationary are called unit root tests.

In statistical term a stationary process is assumed to be in a particular state of statistical equilibrium i.e. p(xt) is the same for all t.

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