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I have computed the first principal component of a number of CDS spreads by using the covariance matrix. Because I have normalised the first difference of the CDS data before conducting PCA I was wondering how to interpret the coefficient. Say I find 0.000374, does this mean that a movement of one s...

Thanks for the help. I've got my answer.

I'm even more confused now. I understand that AR-terms can be substituted by lags of the error term, but AR terms are still (by definition) lags of the dependent variable. In my equation I have not taken the difference of the liquidity proxy, so by rewriting it you won't end up with (y-c(2)*y(-1)) =...

Isn't the lag of the error term MA(1)? And the lag of the dependent variable AR(1)?

Hi, I have managed to confuse myself regarding the AR term in EViews. I have read an earlier thread, but I just want to make sure that I've got this right. Regression: D(LiborSpread) = Alpha + Beta1*D(CDS) + Beta2*LiquidityProxy + AR(1) + e Is the AR(1) a lag of the difference of the dependent varia...