Assignment #2 – Forecasting Methods (FIN 335) Spring 2018

Due 02/01/18 by Midnight - (60 points)

Complete the problems below. Be sure to include all graphics created, all R code used to create
them, and obviously answer the questions pertaining to your analysis. When including R code
you must use Courier New 9 point font. Your discussion of results should NOT be in this font!
I am fond of 10 or 11 point Palatino Linotype, however you may choose to use something else.

For this assignment, I want you to find two time series and read them into R. Try to avoid
using seasonally adjusted time series, as we will be discussing seasonal adjustments as part of
the course. An excellent resource for finding time series that are customizable and clean/easy
to download is the Economic Research site hosted by Federal Reserve Bank in St. Louis, MO.
The link to the FRED site is https://fred.stlouisfed.org/ . Here you can find literally thousands
of time series that would work for this short assignment. You are certainly free to get your
time series elsewhere if you wish, e.g. a favorite stock or whatever.

For each time series do the following: (30 pts. for each series)
1) Read the time series into R. (1 pt.)
2) Provide a short description of the time series. Be sure to include units. (1 pt.)
3) Construct a fully labeled plot of the time series using the autoplot command. Discuss.
(3 pts.)
4) If time series is quarterly or monthly include a plot showing the nature of the seasonality
(i.e. ggseasonplot and/or ggsubseriesplot). Discuss. (3 pts.)
5) Construct a lag plot using gglagplot or lag.plot. Discuss. (3 pts.)
6) Construct a plot of the ACF using ggAcf or Acf functions. Discuss and relate to part (5).
(4 pts.)
7) Use the average/mean method, naïve method, seasonal naïve method, and drift method
to make a forecast using a forecast horizon (ℎ) of your choosing that seems appropriate
giving the frequency of your time series. Provide a plot of each forecast and a table of
the forecasts. You do NOT need to create a plot showing all four simultaneously,
although you certainly could. Which of these simple forecast methods do you think
provides the most reasonable forecasts your series? Justify your answer. (15 pts.)