A SET OF STATISTICAL

OBSERVATIONS
RECORDED OVER TIME
IS CALLED A TIME
SERIES.
TIME SERIES
A time series is a set of statistical observations
arranged in chronological order. –Morris
Hamburg
 Secular The general tendency of a time series data to increase or decrease
Trend(T) over a long period of time is called secular trend or simply trend.

Seasonal These are short–term periodic movements which occur regularly

Variations(S) every year.

COMPONENTS
OF A TIME SERIES Cyclic These are long-term oscillatory movements in a time series with
Variations(C) period of oscillation greater than one year.

Irregular or
These are fluctuations which are completely unpredictable in nature
Random and are caused by unusual or sudden events.
Variations(I)
Additive Model Multiplicative Model

Y =T + S + C + I Y =T * S * C * I MATHEMATICAL
MODELS FOR
TIME SERIES
Where,Y is original Data
METHOD OF LEAST SQUARE

 Yc = a + bX (Fitting the Straight Line Trend)

 ∑Y = na + b ∑X
 ∑XY = a ∑ X + b ∑X²

1. Where, a is Yc at X = 0
2. b is slope of trend. (Change in value of Yc for a unit change in X)
3. X is Year – Origin
4. n is Number of Years in time series
QUESTION

Year Sales

1999 82

2000 86

2001 81

2002 86

2003 92

2004 90

2005 99
WORK SPACE
SOLUTION
QUESTION (EVEN
YEARS)
Year Sales

2005 80

2006 90

2007 92

2008 83

2009 94

2010 99

2011 92

2012 104
WORK SPACE
SOLUTION
FITTING A PARABOLIC TREND

 Yc = a + bX + cX²
 ∑Y = na + b ∑X + c ∑X²
 𝛴XY = 𝑎∑𝑋 + 𝑏 ෌ 𝑋 2 + 𝑐𝛴𝑋 3

 𝛴X²Y = 𝑎∑𝑋² + 𝑏 ෌ 𝑋 3 + 𝑐𝛴𝑋 4

QUESTION

Year Production
2008 1090
2009 1220
2010 1390
2011 1625
2012 1915
WORK SPACE
SOLUTION
SHIFTING THE TREND ORIGIN

 Note: Origin of a trend equation is assumed to be the Centre of the year, quarter or month. (1st July
for annual)

 Yc = a + b(X+k)
 Where, k refers to the time period by which origin is sought to be shifted.
 Forward in time means k is positive , Backward in time means k is negative
QUESTIONS

 Given,Yc = 72 + 2X [Origin : 2003, X unit = one year, Y = annual

production]. Shift origin to 2007
QUESTIONS

 Given,Yc = 110 + 1.5X [Origin : 2008, X unit = one year, Y = annual

production]. Shift origin to 2005
QUESTIONS

 Given, Yc = 91.6 + 28.8X [Origin : 2000, X unit = one year, Y = annual

production]. Shift origin to 1st Jan 2002
QUESTIONS

 Given, Yc = 65 + 3.6X [Origin : First quarter of 2002, X unit = one quarter,

Y = average quarterly sales]. Shift origin to 1st July 2002
CONVERSION OF ANNUAL TREND EQUATIONS TO MONTHLY OR
QUARTERLY

 We know that Yc = a + bX
 Step 1: Identify Y and X.
 Step 2: Divide a by number of (units) in Y
 Step 3: Divide b by number of (units) in X * number of (units) in Y
 Where, units is the measure to what you want to convert the trend equation(Monthly, Quarterly)
etc.
QUESTIONS

 Given, Yc = 81.6 = 28.8X [X = one year, Y = Annual sales]. Convert to

Monthly trend equation
QUESTIONS

 Given, Yc = 2760 + 212X [X = ½ year, Y = Annual earnings]. Convert

to Monthly trend equation