Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

INVERTEBILITY

Timotheus Darikwa

SSTA 031

Lecture Invertebility

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Outline

1 Non-uniqueness of MA models

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Outline

1 Non-uniqueness of MA models

2 Lag Operators (L) or Backshift Operators (B)

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Outline

1 Non-uniqueness of MA models

2 Lag Operators (L) or Backshift Operators (B)

3 MA as an AR process

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Outline

1 Non-uniqueness of MA models

2 Lag Operators (L) or Backshift Operators (B)

3 MA as an AR process

4 Characteristic Equations and Roots

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Outline

1 Non-uniqueness of MA models

2 Lag Operators (L) or Backshift Operators (B)

3 MA as an AR process

4 Characteristic Equations and Roots

5 Examples

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

In Tutorial 2 Question 2.4 it was shown that the two

moving average models:

Yt = et + 3et−1

and
1
Yt = et + et−1
3
have the same autocorrelation ρk .
Similar problem with MA(2) models.
Similar problem with other MA models.
This lack of uniqueness of MA models, given ρk , need to be
addresses before inference can be made about time series.
SOLUTION Express MA as an AR model!!!
MA V AR ⇒ INVERTEBILITY
Timotheus Darikwa SSTA 031
INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

The lag operator (L) or backshift operator (B) : operates on an

element of a time series to produce the previous
element.

Let Y1 , Y2 , ..., Yt be a time series. We define the lag

operator L by:
LYt = Yt−1

Lag of a lag:

L(LYt ) = LLYt = L2 Yt = Yt−2

L(L2 Yt ) = L3 Yt = Yt−3
In general

Lk Yt = Yt−k
Timotheus Darikwa SSTA 031
INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

By definition we also have:

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

By definition we also have:

L0 Yt = Yt
L−k Yt = Yt+k

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

MA(1) as an AR process

Consider an MA(1) process: Yt = et − θet−1

Rewrite as: et = Yt + θet−1
⇒ et = Yt + θYt−1 + θ2 et−2
⇒ et = Yt + θYt−1 + θ2 Yt−2 + θ3 Yt−3 ...
⇒ et = (1 + θL + θ2 L2 + θ3 L3 ...)Yt
⇒ et = θ(L)Yt
where θ(L) = 1 + θL + θ2 L2 + θ3 L3 ...
and θ(L) is a polynomial in L, denoted a lag-polynomial.
Standard rules for calculating with polynomials also hold
for polynomials in L.

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

For a general M A(q) or ARM A(p, q) model, the MA

characteristic polynomial is given by:

Θ(x) = 1 − θ1 x − θ2 x2 − ... − θq xq

and the MA characteristic equation is given by:

Θ(x) = 1 − θ1 x − θ2 x2 − ... − θq xq = 0

It can be shown that the M A(q) model is invertible, that is

there exist coefficients πj such that

Yt = π1 Yt−1 + π2 Yt−2 + π3 Yt−3 + ... + et

if and only if the the absolute roots of the MA
characteristic equation are greater than 1.

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Examples
Yt = et + 2et−1
Yt = et + 12 et−1
These two have the same autocorrelation, but are they
both invertible??
In time series analysis we require the ARMA process to be
both stationary and invertible

Timotheus Darikwa SSTA 031

INVERTEBILITY
Non-uniqueness of MA models Lag Operators (L) or Backshift Operators (B) MA as an AR process Charact

Examples
Yt = et + 2et−1
Yt = et + 12 et−1
These two have the same autocorrelation, but are they
both invertible??
In time series analysis we require the ARMA process to be
both stationary and invertible

Timotheus Darikwa SSTA 031

INVERTEBILITY