APPLICATION OF TIME SERIES ANALYSIS IN FINANCIAL ECONOMICSit CanNovember 1,

2019 statswork 0 Comment Academic, Corporate, Statistics

Time Series Analysis
Are ସୂଚନା
ଓA time series is actually a sେଯାଗ୍ୟequence of data points recorded at regular ସ୍ତ
ଓintervals of time (yearly, quarterly, monthly, daily). Time series includes two ହରହ ଓ ସଲ ସହ ହସୁ
more variables
Let me present you a list of examples of time series:

Monthly or daily precipitation of a region

Daily stock prices ଇ
ସopening, closing) over a period of years/days.
Monthly bike sales over a period of 3 years
Annual unemployment rate over a period of 10 years
Forecasting the Time Series Data

The main objective of a Time Series Analysis is to develop a suitable model to describe the
pattern or trend in data with more accuracy. However, forecasting a time series data predicts
future outcomes based on the immediate past. Forecasting can be done for closing/opening the
rate of stock on daily basis, quarterly revenues of a company, etc., There are various models
available in the literature to forecast the time series data. Some of them are:

Autoregressive Integration Moving Average (ARIMA)

Simple Moving Average (SMA)
Exponential Smoothing (SES)
Neural Network (NN)
Linear Regression Models
Logistic Regression
Support Vector Machine
Naive Bayes
Hidden Markov
VAR
Gaussian Processes
Well, many complex models or techniques may be useful in certain cases to forecast a time
series data. They are:

Neural Networks Autoregression (NNAR)

RNN (Recurrent Neural Network)
Bayesian-based models
Generalized Autoregressive Conditional Heteroskedasticity (GARCH)
The performance of the time series models can be interpreted based on its error terms such as
AIC, BIC, Mean Squared Error, etc. and it can be emphasized for forecasting.

The principle interest for every time series analysis is to split the original series into independent
components. The decomposition of time series is much easy to forecast the individual regular
patterns produced than from the actual series. Typically, time series are further split into three
main components:

Trend
Seasonality
Cycle

Applications of Time Series Forecasting:

Time series models usually used to forecast the stock’s performance, interest rate, weather, etc.
In this post, we will look at few situations where time series can be useful to forecast the future
outcome.

Application 1:

In this example, we will look the daily values of the data with time factor available between 2010
and 2016 from Yahoo Finance repository. I extracted the entire time line for 4 related time series
(SERIES A values and volumes, SERIES B values and volumes). Forecasting is done for
SERIES A values based on the most recent trend (lags) of SERIES A volumes and SERIES B
values and volumes. Apart from this, we make use of other dataset from Kaggle to forecast the
market sentiment. The data involves top daily news headlines between 2008 and 2016.

Primary step in the time series analysis is that, one should check whether the time series is
approximately stationary and normalized. For this situation, RNN forecasting is used to predict
the outcomes variable of interest that results in the inference of the future time evolution of the
SERIES A values based on its past trends (including volumes) as well as the past trend of
another SERIES B, and market sentiment.

Forecast future values of time series:

It forecasts SERIES A values based on the most recent trend (lags) of SERIES A volumes,
SERIES B values and volumes, and market sentiment using ARIMA model. The mean absolute
error (MAE) is used to understand the trend in this graph and it is 10, 24, 14, 15 for each sample
respectively. The following figure shows a comparison of 10-day forecast.
In a traditional regression data, dependent or response variable is influenced by a set of
independent variables. The degree of dependence on previous outcomes varies for each case,
and can be explained by (ACF) Auto Correlation Factor as given in below figure.

Looking at the ACF and PACF plots, one can choose proper values of the parameters in the
model. The results from ARIMA model will look like:

to, from the results SERIES B values significantly influences the forecasting made for
eeeessedzxc​vc centered xx ft
Eee wek with o it can do we4 will call Dadtatswork experts for time series forecasting to build
the marketing can do the exuxy by of financial organisation. Bubble xx xx xx xbss

Lastly, let us look at a situation where the trend of the sales and tractor demand in XYZ
manufacturing company is to be analysed. The company is interested in understanding the
impact of marketing efforts towards the sales. In such situation, finding the pattern of the sales
and demand cme
viewed using a well-known ARIMA model and predict the sales/ can ​come visit xx​demand for
the upcoming years. In addition, the impact of the marketing
can bww e studied using exogenous variables under ARIMA model.

To sum up, there are various applications apart from these three are available in our day-to-day
life. However, many financial organisation relies on time series forecasting to build their
marketing strategy to meet the customer’s needs. Thus, a more proper model should be
selected to analyse the pattern of financial data.

References
Dunning, T., & Friedman, E. (2015). Time Series Databases (1st ed.). California: O’Reilly
Media..
Hyndman, R., & Athanasopoulos, G. (2017). Forecasting: Principles and Practice (2nd ed.)…
Hyndman, R., & Khandakar, Y. (2008). Automatic time series forecasting: the forecast package
for {R}. Journal of Statistical Software, 26(3), 1-22…
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Home | Academic Solutions | Directory of Statistical Analyses | General | Time Series Analysis
Time Series Analysis
Time series analysis is a statistical technique that deals with time series data, or trend analysis.
Time series data means that data is in a series of particular time periods or intervals. The data
is considered in three types:

Time series data: A set of observations on the values that a variable takes at different times.

Cross-sectional data: Data of one or more variables, collected at the same point in time.

Pooled data: A combination of time series data and cross-sectional data.

Terms and concepts:

Dependence: Dependence refers to the association of two observations with the same variable,
at prior time points.

Stationarity: Shows the mean value of the series that remains constant over a time period; if
past effects accumulate and the values increase toward infinity, then stationarity is not met.
Differencing: Used to make the series stationary, to De-trend, and to control the
auto-correlations; however, some time series analyses do not require differencing and
over-differenced series can produce inaccurate estimates.

Specification: May involve the testing of the linear or non-linear relationships of dependent
variables by using models such as ARIMA, ARCH, GARCH, VAR, Co-integration, etc.

Exponential smoothing in time series analysis: This method predicts the one next period value
based on the past and current value. It involves averaging of data such that the nonsystematic
components of each individual case or observation cancel out each other. The exponential
smoothing method is used to predict the short term predication. Alpha, Gamma, Phi, and Delta
are the parameters that estimate the effect of the time series data. Alpha is used when
seasonality is not present in data. Gamma is used when a series has a trend in data. Delta is
used when seasonality cycles are present in data. A model is applied according to the pattern
of the data. Curve fitting in time series analysis: Curve fitting regression is used when data is in
a non-linear relationship. The following equation shows the non-linear behavior:

Dependent variable, where case is the sequential case number.

Curve fitting can be performed by selecting “regression” from the analysis menu and then
selecting “curve estimation” from the regression option. Then select “wanted curve linear,”
“power,” “quadratic,” “cubic,” “inverse,” “logistic,” “exponential,” or “other.”

ARIMA:

ARIMA stands for autoregressive integrated moving average. This method is also known as the
Box-Jenkins method.

Identification of ARIMA parameters:

Autoregressive component: AR stands for autoregressive. Autoregressive paratmeter is

denoted by p. When p =0, it means that there is no auto-correlation in the series. When p=1, it
means that the series auto-correlation is till one lag.

Integrated: In ARIMA time series analysis, integrated is denoted by d. Integration is the inverse
of differencing. When d=0, it means the series is stationary and we do not need to take the
difference of it. When d=1, it means that the series is not stationary and to make it stationary,
we need to take the first difference. When d=2, it means that the series has been differenced
twice. Usually, more than two time difference is not reliable.
Moving average component: MA stands for moving the average, which is denoted by q. In
ARIMA, moving average q=1 means that it is an error term and there is auto-correlation with
one lag.

In order to test whether or not the series and their error term is auto correlated, we usually use
W-D test, ACF, and PACF.

Decomposition: Refers to separating a time series into trend, seasonal effects, and remaining
variabilityAssumptions:

Stationarity: The first assumption is that the series are stationary. Essentially, this means that
the series are normally distributed and the mean and variance are constant over a long time
period.

Uncorrelated random error: We assume that the error term is randomly distributed and the mean
and variance are constant over a time period. The Durbin-Watson test is the standard test for
correlated errors.

No outliers: We assume that there is no outlier in the series. Outliers may affect conclusions
strongly and can be misleading.

Random shocks (a random error component): If shocks are present, they are assumed to be
randomly distributed with a mean of 0 and a constant variance.

Statistics Solutions can assist with your quantitative analysis by assisting you to develop your
methodology and results chapters. The services that we offer include:

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Edit your research questions and null/alternative hypotheses

Write your data analysis plan; specify specific statistics to address the research questions, the
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*Please call 877-437-8622 to request a quote based on the specifics of your research, or email
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Resources

Brockwell, P. J., & Davis, R. A. (1991). Time Series: Theory and Methods (2nd ed.). New York:
Springer-Verlag. View

Cromwell, J. B., Hannan, M. J., Labys, W. C., & Terraza, M. (1994). Multivariate tests for time
series models. Thousand Oaks, CA: Sage Publications. View

Cromwell, J. B., Labys, W. C., & Terraza, M. (1994). Univariate tests for time series models.
Thousand Oaks, CA: Sage Publications. View

Crosbie, J., & Sharpley, C. F. (1989). DMITSA: A simplified interrupted time-series analysis
program. Behavior Research Methods, Instruments & Computers, 21(6), 639-642.

Gallistel, C. R. (1992). Classical conditioning as a nonstationary, multivariate time series

analysis: A spreadsheet model. Behavior Research Methods, Instruments & Computers, 24(2),
340-351.

Hamaker, E. L., Dolan, C. V., & Molenaar, P. C. M. (2005). Statistical modeling of the individual:
Rationale and application of multivariate stationary time series analysis. Multivariate Behavioral
Research, 40(2), 207-233.

Hamilton, J. D. (1994). Time Series Analysis. Princeton, NJ: Princeton University Press. View

McDowall, D., McCleary, R., Meidinger, E. E., & Hay, R. A., Jr. (1980). Interrupted time series
analysis. Thousand Oaks, CA: Sage Publications. View

Ostrom, C. W., Jr. (1990). Time series analysis: Regression techniques (2nd ed.). Thousand
Oaks, CA: Sage Publications. View

Sayrs, L. W. (1989). Pooled time series analysis. Newbury Park, CA: Sage Publications. View

Strahan, R. (1973). A generalized directional coefficient for multiple time-series analysis.

Multivariate Behavioral Research, 8(1), 109-116.
Velicer, W. F., & Fava, J. L. (2003). Time series analysis. In J. A. Schinka & W. F. Velicer
(Eds.), Handbook of psychology: Research methods in psychology (pp. 581-606). Hoboken, NJ:
John Wiley & Sons.

Yanovitzky, I., & VanLear, A. (2008). Time series analysis: Traditional and contemporary
approaches. In A. F. Hayes, M. D. Slater, & L. B. Snyder (Eds.), The SAGE Sourcebook of
Advanced Data Analysis Methods for Communications Research (pp. 89-124). Thousand Oaks,
CA: Sage Publications. View

Statistics Solutions can assist with your quantitative analysis by assisting you to develop your
methodology and results chapters. The services that we offer include:

Data Analysis Plan

Edit your research questions and null/alternative hypotheses

Write your data analysis plan; specify specific statistics to address the research questions, the
assumptions of the statistics, and justify why they are the appropriate statistics; provide
references

Justify your sample size/power analysis, provide references

Explain your data analysis plan to you so you are comfortable and confident

Two hours of additional support with your statistician

Quantitative Results Section (Descriptive Statistics, Bivariate and Multivariate Analyses,

Structural Equation Modeling, Path analysis, HLM, Cluster Analysis)

Clean and code dataset

Conduct descriptive statistics (i.e., mean, standard deviation, frequency and percent, as
appropriate)

Conduct analyses to examine each of your research questions

Write-up results

Provide APA 6th edition tables and figures

Explain chapter 4 findings

Ongoing support for entire results chapter statistics

Please call 727-442-4290 to request a quote based on the specifics of your research, schedule
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