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Time Series Decomposition
Time Series Decomposition
PGDM-II: Term IV
(2021-22)
Kakali Kanjilal
Professor, OM & QT
IMI New Delhi
PA with TS
data
Modelling
Problem Statement
Models
• Immediate Future/Short-Term
• Long-Term
• Ex Post/In-sample
• Ex Ante/Out-of-Sample
Suppose you have data covering the period
2010.Q1-2018.Q4
Ex-Post/In-
sample The
Forecast Future
Ex-Post Estimation Period Period
3000
2500
2000
1500
1000
160
140
40
20
0
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11
•
•
•
•
0
5000
10000
15000
20000
25000
30000
35000
0
100000
200000
300000
400000
500000
600000
Apr-00
Aug-00 Jan-98
Jun-98
Dec-00
Nov-98
Apr-01
Apr-99
Aug-01 Sep-99
Dec-01 Feb-00
Apr-02 Jul-00
Dec-00
Aug-02
Exists trend May-01
Trend
Dec-02
Oct-01
Random part
Apr-03 Mar-02
Aug-03 Aug-02
Dec-03 Jan-03
Jun-03
Apr-04
Nov-03
Aug-04
Demand
Apr-04
Seasonal movement
Dec-04 Sep-04
Electricity Peak
Apr-05 Feb-05
Aug-05 Jul-05
foreign tourist
Dec-05 Dec-05
Random part
May-06
Apr-06
Oct-06
Aug-06 Mar-07
Dec-06
Time Series Data
Seasonality
Trend & Cyclical Patterns
Sales ($)
Secular trend
Cyclical patterns
0 2 4 6 8 10 12 14 16 18 20
Years
Trend, Seasonal & Random
Components
Sales ($)
peak
peak Seasonal
pattern
Long-run trend
Random (secular plus cyclical)
fluctuations
J F M A M J J A S O N D
Months
Time Series Data
25
30 days return over a
period(%)-Infosys
20
15
10
0
2-May-09 2-Sep-09 2-Jan-10 2-May-10 2-Sep-10 2-Jan-11
• No trend
-5
-10
0
Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11
-1
-2
Components
• Secular Trend: long run pattern
Yt = mt + st + ct + rt (additive model)
Yt = mt * st * ct * rt (multiplicative model)
– mt : trend component
(deterministic, changes slowly with t);
– st : seasonal component
(deterministic, period d);
- ct : Cyclical component = 0 (Assume)
– rt : random stationary component
Elimination of Trend
• Methods:
• Step I: Identification
Check the stationary property of a time series
through graphical plot/unit root tests/Correlogram
Identify the time series (AR/MA/ARMA/ARIMA)
process through ACF, PACF
De-trend and/or
Model for Yt
De-seasonalize
AR, MA, ARMA
Model for Yt
AR, MA, ARMA
Forecast Yt
(In-sample/Out of sample)
Identification
Non-stationarity
(Due to Trend & Seasonality)
Box Jenkin’s ARIMA Modeling
• Step I: Identification
• Check the stationary property of a time series
through graphical plot ,unit root tests Correlogram
(ACF/PACF plots)
• Step I: Identification
SO,
RWM is the persistence of random shocks and impact of
particular shock does not die away
to find
root
Seems
or ‘the
there
series
is seasonality.
is NOT
Stationary’ at 5% level of
‘Correlogram’
significance.
So, to forecast monthly ‘Peak
Electricity Demand’ we have to
and
make the series stationary.
‘Non-Staionarity Tests’
Class Exercise
-Cases from Gujarati
- Course material cases
Find ACF & PACF,
Conduct Stationarity Test
Microsoft Office
Excel Worksheet