Question

What are the problems of analyzing non-stationary data?

 

Answer 1

Non stationary data, as a rule, are unpredictable and cannot be modeled or forecasted.the results obtained by using non-stationary time series may be spurious in that they may indicate a relationship between two variables where pne does not exist.

using non-stationary time series data in financial produces unreliable spurious results and leads to poor understanding and forecasting. the solution to the problem is to transform the time series data so that it becomes stationay..sometimes the non-stationary series may combine a stochastic and deterministic trend at the same time and to avoid obtaining misleading results both differencing and detrending should be applied,as differencing will remove the trend in the variance and detrending will remove the deterministic trend