FMV Işık University

Department of Industrial Engineering

INDE3151 - Forecasting Methods
Spring 2024

Assignment 3
Due: May 21, 2024

Use the time series data you have collected as part of your previous assignments to address the following questions.
If the time series data you have collected is not long enough for the purposes of this assignment, you may either make
an attempt to extend it with new observations or decide to use a different data set that you see appropriate. If you are
using a new data set, make sure you explain what the data is about and where you obtained it from.

1. Briefly describe your data and make a conjecture about what sort of seasonality may be expected. Using
a seasonal lag that is consistent with your conjecture, apply the classical additive time-series decomposition
technique and extract the trend-cycle, seasonal, and shock components of your data. Draw a time-series
decomposition plot that illustrates these components and briefly discuss the behavior of your data.

2. Fit a double exponential smoothing model to your data and obtain one-period-ahead forecasts. Determine
the optimal level and trend smoothing parameters and using these values; (a) draw a simple time plot of the
actual realizations and forecast values, (b) report the mean error, the mean absolute error, the mean absolute
percentage error, and the root mean squared error for your model, (c) draw a correlogram of the forecast
errors and test for independence of the first six autocorrelations using the Ljung-Box test, and (d) evaluate
the normality of your forecast errors using the Jarque-Bera test. Briefly discuss your results.

3. Fit a triple exponential smoothing model to your data to obtain one-period-ahead forecasts. Determine
the optimal level, trend, and seasonal smoothing parameters and using these values; (a) draw a simple time
plot of the actual realizations and forecast values, (b) report the mean error, the mean absolute error, the
mean absolute percentage error, and the root mean squared error for your model, (c) draw a correlogram of
the forecast errors and test for independence of the first six autocorrelations using the Ljung-Box test, and
(d) evaluate the normality of your forecast errors using the Jarque-Bera test. Briefly discuss your results.

4. Conduct a simple linear time-series regression using your time-series as the dependent variable and a
potential predictor (measured at the same frequency over the same time period) as the explanatory variable.
Estimate the regression parameters and test their significance by building a 95% confidence interval around
each of them. Briefly discuss what each parameter signifies for the variable that is being forecast. Compute
the coefficient of determination and F-statistic of your model and test for overall model significance.