Durbin Watson

CFA Level II Quant
#1

I understand that significant large values (>2) of the Durbin Watson statistic point to negative serial correlation.

I thought that the DW test could just tell us whether or not there is statistically significant positive serial correlation, with the decision rules as follows:

  • Reject H0 : means positive serial correlation
  • Fail to reject H0 : no evidence of positive serial correlation > so it could be either no serial correlation or negative serial correlation (correct?)

But I found the following in the correction of the topic tests (in Reyes): "Specifically, if the DW statistic exceeds 4 – dl, where dl is the lower critical value of the Durbin–Watson test, there is significant negative serial correlation. "

Where does this come from? Can anyone confirm/clarify?

#2

I wrote an article on the Durbin-Watson test that may be of some help here: http://financialexamhelp123.com/durbin-watson-statistic-test/

#3

This can be a headache, I agree.

#4

Great article, I got all the answers I was looking for. Thank you.