Professional Documents
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Methods of Time Series
Methods of Time Series
4 ?
4
lL should be noLed LhaL when Lhe perlod of movlng average ls even Lhe
compuLed average wlll correspond Lo Lhe mlddle of Lhe Lwo mlddle
mosL perlods
10
MLkI1S
11hls meLhod ls easy Lo undersLand and easy Lo use because Lhere
are no maLhemaLlcal complexlLles lnvolved
2lL ls an ob[ecLlve meLhod ln Lhe sense LhaL anybody worklng on a
problem wlLh Lhe meLhod wlll geL Lhe same Lrend values lL ls ln
Lhls respecL beLLer Lhan Lhe free hand curve meLhod
3lL ls a flexlble meLhod ln Lhe sense LhaL lf a few more observaLlons
are added Lhe enLlre calculaLlons are noL changed 1hls noL wlLh
Lhe case of semlaverage meLhod
4When Lhe perlod of osclllaLory movemenLs ls equal Lo Lhe perlod
of movlng average Lhese movemenLs are compleLely ellmlnaLed
38y Lhe lndlrecL use of Lhls meLhod lL ls also posslble Lo lsolaLe
seasonal cycllcal and random componenLs
DLMLkI1S
1lL ls noL posslble Lo calculaLe Lrend values for all Lhe lLems of Lhe
serles Some lnformaLlon ls always losL aL lLs ends
21hls meLhod can deLermlne accuraLe values of Lrend only lf Lhe
osclllaLory and Lhe random flucLuaLlons are unlform ln Lerms of
perlod and ampllLude and Lhe Lrend ls aL leasL approxlmaLely
llnear Powever Lhese condlLlons are rarely meL ln pracLlce
When Lhe Lrend ls noL llnear Lhe movlng averages wlll noL glve
correcL values of Lhe Lrend
31he Lrend values obLalned by movlng averages may noL follow any
maLhemaLlcal paLLern le falls ln seLLlng up a funcLlonal
relaLlonshlp beLween Lhe values of x(Llme) and ?(values) and Lhus
11
cannoL be used for forecasLlng whlch perhaps ls Lhe maln Lask of
any Llme serles analysls
41he selecLlon of perlod of movlng average ls a dlfflculL Lask and a
greaL deal of care ls needed Lo deLermlne lL
3Llke arlLhmeLlc mean Lhe movlng averages are Loo much affecLed
by exLreme values
ML1nCD CI LLAS1 SUAkLS
1hls ls one of Lhe mosL popular meLhods of flLLlng a maLhemaLlcal
Lrend 1he flLLed Lrend ls Lermed as Lhe besL ln Lhe sense LhaL Lhe sum
of squares of devlaLlons of observaLlons from lL ls mlnlmlzed 1hls
meLhod of LeasL squares may be used elLher Lo flL llnear Lrend or a non
llnear Lrend (arabollc and LxponenLlal Lrend)
II11IG CI LINLAk 1kLND
Clven Lhe daLa (?
L
L) for n perlods where L denoLes Llme perlod such as
year monLh day eLc We have Lo Lhe values of Lhe Lwo consLanLs 'a'
and 'b' of Lhe llnear Lrend equaLlon
?
L
a + bL
Where Lhe value of 'a' ls merely Lhe ?lnLercepL or Lhe helghL of Lhe llne
above orlgln 1haL ls when x0 ? a 1he oLher consLanL 'b' represenLs
Lhe slope of Lhe Lrend llne When b ls poslLlve Lhe slope ls upwards
and when b ls negaLlve Lhe slope ls downward
1
1hls llne ls Lermed as Lhe llne of besL flL because lL ls so flLLed LhaL Lhe
LoLal dlsLance of devlaLlons of Lhe glven daLa from Lhe llne ls mlnlmum
1he LoLal of devlaLlons ls calculaLed by squarlng Lhe dlfference ln Lrend
value and acLual value of varlable 1hus Lhe Lerm LeasL Squares" ls
aLLached Lo Lhls meLhod
uslng leasL square meLhod Lhe normal equaLlon for obLalnlng Lhe
values of a and b are
?
L
na + b
L
L?
L
aL + bL
2
LeL x L A such LhaL x 0 where A denoLes Lhe year of orlgln
1he above equaLlons can also be wrlLLen as
? na + bx
x? ax + b x
2
Slnce x 0 le devlaLlon from acLual mean ls zero
We can wrlLe
a ]n
b k ]k
1
II11ING CI AkA8CLIC 1kLND
1he maLhemaLlcal form of a parabollc Lrend ls glven by
?
L
a + bL+cL
2
Pere a b and c are consLanLs Lo be deLermlned from Lhe glven daLa
uslng Lhe meLhod of leasL squares Lhe normal equaLlons for Lhe
slmulLaneous soluLlon of a b and c are
? na + bL +cL
2
L? aL + bL
2
+ cL
3
L
2
? aL
2
+ bL
3
+ cL
4
8y selecLlng a sulLable year of orlgln le deflne x L orlgln such LhaL
x 0 Lhe compuLaLlon work can be conslderably slmpllfled Also noLe
LhaL lf x 0 Lhen x
3
wlll also be equal Lo zero 1hus Lhe above
equaLlons can be rewrlLLen as
? na +cx
2
(1)
x? bx
2
(2)
x
2
? ax
2
+ cx
4
(3)
lrom equaLlon (2) we geL
b k]k
14
lrom equaLlon (1) we geL
And from equaLlon (3) we geL
1hls are Lhe Lhree equaLlons Lo flnd Lhe value of consLanLs a b and c
II11ING CI LkCNLN1IAL 1kLND
1he general form of an exponenLlal Lrend ls
? ab
L
a ck
]n
c nk
(k
% ( % ]nk
4
(k
%
or
c k
ak
]k
4
1
Where 'a' and 'b' are consLanLs Lo be deLermlned from Lhe observed
daLa
1aklng logarlLhms of boLh slde we gave log ? log a + log b
1hls ls llnear equaLlon ln log ? and L can be flLLed ln a slmllar way as
done ln case of llnear Lrend LeL Alog a and 8 log b Lhen Lhe above
equaLlon can be wrlLLen as
log ? A + 8L
1he normal equaLlons based on Lhe prlnclple of leasL squares are
log ? n A + 8 L
And L log ? n L + 8 L
2
8y selecLlng a sulLable orlgln le deflnlng x L orlgln such LhaL x 0
Lhe compuLaLlon work can be slmpllfled 1he values of A and 8 are
glven by
And
A |og ] n
8 k |og ] k
1
1hus Lhe flLLed Lrend equaLlon can be wrlLLen as
log ? A + 8x or
? AnLllog A +8x
AnLllog log a + x log b
AnLllog log ab
x
ab
x
MLkI1S
1Clven Lhe maLhemaLlcal form of Lhe Lrend Lo be flLLed Lhe leasL
squares meLhod ls an ob[ecLlve meLhod
2unllke Lhe movlng average meLhod lL ls posslble Lo compuLe
Lrend values for all Lhe perlods and predlcL Lhe value for a perlod
lylng ouLslde Lhe observed daLa
31he resulLs of Lhe meLhod of leasL squares are mosL saLlsfacLory
because Lhe flLLed Lrend saLlsfles Lhe Lwo mosL lmporLanL
properLles le (1) (?
0
?
L
) 0 and (2) (?
0
?
L
)
2
ls mlnlmum
Pere ?
0
denoLes Lhe observed values and ?
L
denoLes Lhe calculaLed
Lrend value
1he flrsL properLy lmplles LhaL Lhe poslLlon of flLLed Lrend
equaLlon ls such LhaL Lhe sum of devlaLlons of observaLlons above and
below Lhls equal Lo zero 1he second properLy lmplles LhaL Lhe sums of
squares of devlaLlons of observaLlons abouL Lhe Lrend equaLlons are
mlnlmum
1
DLMLkI1S
1As compared wlLh Lhe movlng average meLhod lL ls cumbersome
meLhod
2lL ls noL flexlble llke Lhe movlng average meLhod lf some
observaLlons are added Lhen Lhe enLlre calculaLlons are Lo be
done once agaln
3lL can predlcL or esLlmaLe values only ln Lhe lmmedlaLe fuLure or
Lhe pasL
41he compuLaLlon of Lrend values on Lhe basls of Lhls meLhod
doesn'L Lake lnLo accounL Lhe oLher componenLs of a Llme serles
and hence noL rellable
3Slnce Lhe cholce of a parLlcular Lrend ls arblLrary Lhe meLhod ls
noL sLrlcLly ob[ecLlve
61hls meLhod cannoL be used Lo flL growLh curves Lhe paLLern
followed by Lhe mosL of Lhe economlc and buslness Llme serles
1
HFASuRFHFtT 0F SFAS0tAl vARlATl0tS
1he measuremenL of seasonal varlaLlons ls done by lsolaLlng Lhem
from oLher componenLs of a Llme serles 1here are four meLhods
commonly used for Lhe measuremenL of seasonal varlaLlons 1hese
meLhods are
1MeLhod of Slmple Average
28aLlo Lo 1rend MeLhod
38aLlo Lo Movlng Average MeLhod
4MeLhod of llnk 8elaLlves
1 ML1nCD CI SIMLL AVLkAGL
1hls ls Lhe easlesL and Lhe slmplesL meLhod of sLudylng seasonal
varlaLlons 1hls meLhod ls used when Lhe Llme serles varlable conslsLs
of only Lhe seasonal and random componenLs 1he effecL of Laklng
average of daLa correspondlng Lo Lhe same perlod (say flrsL quarLer of
each year) ls Lo ellmlnaLe Lhe effecL of random componenL and Lhus
Lhe resulLlng averages conslsL of only seasonal componenL 1hese
averages are Lhen converLed lnLo seasonal lndlces lL lnvolves Lhe
followlng sLeps
lf flgures are glven on a monLhly basls
1Average Lhe raw daLa monLhly year wlse
2llnd Lhe sum of all Lhe flgures relaLlng Lo a monLh lL means add
all values of !anuary for all Lhe years 8epeaL Lhe process for all
Lhe monLhs
1
3llnd Lhe average of monLhly flgures le dlvlde Lhe monLhly LoLal
by Lhe number of years lor example lf Lhe daLa for 3 years (on
monLhly basls ls avallable) Lhere wlll be flve flgures for !anuary
1hese have Lo be LoLaled and dlvlded by flve Lo geL Lhe average
flgures for !anuary CeL such flgures for all monLhs 1hey may be
x
1
x
2
x
3
x
12
4CbLaln Lhe average of monLhly averages by dlvldlng Lhe sum of
averages by 12 or
X + X +X+. . . +X
= X
31aklng Lhe average of monLhly average as 100 flnd ouL Lhe
percenLages of monLhly averages lor Lhe average of !anuary (x
1
)
Lhls percenLage would be
oro o onor
oro o on oros
Cr
X
X
lf lnsLead of Lhe averages Lhe monLhly LoLals are Laken lnLo Lhe
accounL Lhe resulL would be Lhe same
MLkI1S AND DLMLkI1S
1hls ls a slmplesL meLhod of measurlng seasonal varlaLlons
Powever Lhls meLhod ls based on Lhe unreallsLlc assumpLlon LhaL Lhe
Lrend and cycllcal varlaLlons are absenL from Lhe daLa
0
kA1IC 1C 1kLND ML1nCD
1hls meLhod ls used when Lhen cycllcal varlaLlons are absenL from
Lhe daLa le Lhe Llme serles varlable ? conslsLs of Lrend seasonal and
random componenLs
uslng symbols we can wrlLe 1 S k
varlous sLeps ln Lhe compuLaLlon of seasonal lndlces are
1CbLaln Lhe Lrend values for each monLh or quarLer eLc by Lhe
meLhod of leasL squares
2ulvlde Lhe orlglnal values by Lhe correspondlng Lrend values 1hls
would ellmlnaLe Lrend values from Lhe daLa
31o geL flgures ln percenLages Lhe quoLlenLs are mulLlplled by 100
1hus we have Lhree equaLlons
MLkI1S AND DLMLkI1S
lL ls an ob[ecLlve meLhod of measurlng seasonal varlaLlons
Powever lL ls very compllcaLed and doesn'L work lf cycllcal varlaLlons
are presenL
] 1 100
1 S k ] 1 100
S k 100
1
kA1IC 1C MCVING AVLkAGL ML1nCD
1he raLlo Lo movlng average ls Lhe mosL commonly used meLhod
of measurlng seasonal varlaLlons 1hls meLhod assumes Lhe presence of
all Lhe four componenLs of a Llme serles varlous sLeps ln Lhe
compuLaLlon of seasonal lndlces are as follows
1CompuLe Lhe movlng averages wlLh perlod equal Lo Lhe
perlod of seasonal varlaLlons 1hls would ellmlnaLe Lhe
seasonal componenLs and mlnlmlze Lhe effecL of random
componenL 1he resulLlng movlng averages would conslsL of
Lrend cycllcal and random componenLs
21he orlglnal values for each quarLer ( or monLh) are dlvlded
by Lhe respecLlve movlng average flgures and Lhe raLlo ls
expressed as a percenLage le S8" ? / M A 1CS8 / 1C8'
where 8' and 8" denoLe Lhe changed random componenLs
3llnally Lhe random componenL 8" ls ellmlnaLed by Lhe
meLhod of slmple averages
MLkI1S AND DLMLkI1S
1hls meLhod assumes LhaL all Lhe four componenLs of a Llme
serles are presenL and Lherefore wldely used for measurlng seasonal
varlaLlons Powever Lhe seasonal varlaLlons are noL compleLely
ellmlnaLed lf Lhe cycles of Lhese varlaLlons are noL of regular naLure
lurLher some lnformaLlon ls always losL aL ends of Lhe Llme serles
4 LINk kLLA1IVLS ML1nCD
1hls meLhod ls based on Lhe assumpLlon LhaL Lhe Lrend ls llnear
and cycllcal varlaLlons are of unlform paLLern 1he llnk relaLlves are
percenLages of Lhe currenL perlod (quarLer or monLh) as compared wlLh
Lhe prevlous perlod WlLh Lhe compuLaLlons of Lhe llnk relaLlves and
Lhelr average Lhe effecL of cycllcal and Lhe random componenLs ls
mlnlmlzed lurLher Lhe Lrend geLs ellmlnaLed ln Lhe process of
ad[usLmenL of chaln relaLlves 1he followlng sLeps are lnvolved ln Lhe
compuLaLlon of seasonal lndlces by Lhls meLhod
1CompuLe Lhe Llnk 8elaLlve (L8) of each perlod by dlvldlng Lhe
flgure of LhaL perlod wlLh Lhe flgure of prevlous perlod lor
example
Llnk relaLlve of 3
rd
quarLerflgure of 3
rd
quarLer / flgure of 2
nd
quarLer 100
2CbLaln Lhe average of llnk relaLlves of a glven quarLer (or monLh)
of varlous years AM or M
d
can be used for Lhls purpose
1heoreLlcally Lhe laLer ls preferable because Lhe former glves
undue lmporLance Lo exLreme lLems
31hese averages are converLed lnLo chalned relaLlves by assumlng
Lhe chalned relaLlve of Lhe flrsL quarLer (or monLh) equal Lo 100
1he chalned relaLlve (C8) for Lhe currenL perlod (quarLer or
monLh)
C8 of Lhe prevlous perlod L8 of Lhe currenL perlod / 100
4CompuLe Lhe C8 of Lhe flrsL quarLer (or monLh) on Lhe basls of
Lhe lasL quarLer (or monLh) 1hls ls glven by
C8 of Lhe lasL quarLer (monLh) average L8 of Lhe flrsL quarLer
(monLh) / 100
a1hls value ln general ls dlfferenL from 100 due Lo long Lerm
Lrend ln Lhe daLa 1he chalned relaLlves obLalned above are
Lo be ad[usLed for Lhe effecL of Lhls Lrend 1he ad[usLmenL
facLor
u =