Analysis of Time Series

Introduction
• Time series analysis is one of the statistical techniques applied
to determine the pattern of fluctuations in the data compiled
over a period of time.
• An arrangement of statistical data in accordance with time of
occurrence is called a time series
• The time series refers to any group of statistical information
accumulated at regular intervals.
• It reflects the dynamic pace of movements of a phenomenon
over a period of time.
• It actually depicts the relationship between two variables, one
of them being time.
 Utility
• Detecting the patterns of change in statistical information
• Describing the moments in phenomenon under study
• Understanding the past behavior
• Estimating the future behavior
• Comparing the data of one period with that of another
• Evaluating the current progress in any field
 Variations / Components of Time Series
• Secular trend or long term movement (T)
– It tends to increase or decrease or stagnate over a long period of
time
• Seasonal Variation (S)
– Involves patterns of change within a year that tend to be
repeated from year to year
• Cyclical Variation (C)
– Oscillatory movements in a time-series with period of oscillation
greater than one year
• Irregular Variation (I or R)
– Arise owing to unforeseen and unpredictable forces which
operate in an absolutely erratic and irregular manner.
 PRELIMINARY ADJUSTMENTS
• Calendar Variation
• Population Changes
• Price Changes
• Miscellaneous Changes
 Estimation of Secular Trend
• Free hand drawing or Graphic Method
• Semi-average method
• Moving average method
• The least squares method
 Semi-average method
• Plot the time series
• Divide the series into two equal parts
• Compute the A.M (semi-average) for each part
• Plot each semi-average against the middle of time periods of
the corresponding segment
• Draw a straight line through these two points which is the
trend line
 Semi-average method
S1 + S 2 S2 – S 1
a= b=
t1 + t 2 t1 (n – t2)

The trend equation is Ye = a + bt

• Draw a trend line by the method of semi-average to the data

referring to population of a country.

Year 2004 2005 2006 2007 2008 2009 2010

Population 60 76 80 115 110 120 130
in Millions
 Moving average method
• Plot the time series values
• Decide on the time span – the period (n) over which the moving
averages are to be calculated
• Find the total of first n consecutive units and place this value
against the middle of the period considered
• Leave the first value and add up the values of next consecutive n
years 2, 3, 4, … (n+1)th and place this against the middle of its period
• Continue this process until the last year’s value is taken for
constructing moving totals
• Divide these totals by n and place them in the next column. These
are the trend values based on n-yearly moving average.
• If these values are plotted, it will give us the trend curve
 Moving average method
• Compute three yearly moving average trend values for the
data relating to number of homes built by a builder.
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Homes 15 18 17 20 23 25 29 33 36 40

• Estimate the trend values for the data relating to sales of a

departmental stores using 4-yearly moving averages
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sales 100 105 115 90 95 85 80 65 75 70 75
Year No. of 3-yearly moving 3-yearly moving
homes totals averages
2001 15 … …
2002 18 50 16.7
2003 17 55 18.3
2004 20 60 20
2005 23 68 22.7
2006 25 77 25.7
2007 29 87 29
2008 33 98 32.7
2009 36 109 36.3
2010 40 … …
 Moving average method
• Calculate trend values using 3-yearly, 5-yearly and 7-yearly
moving averages to the data referring to defective units in the
production of a firm
Year No. of defective units
2000 123
2001 126
2002 128
2003 132
2004 120
2005 112
2006 112
2007 110
2008 109
2009 113
 Method of Least Square
• The method can be used to describe the linear and non-linear
trend
• Fitting of a linear trend:
a=
∑Y b=
∑ tY
n ∑ t2
• Coding procedure:
t coded = t actual – t assumed

Trend value Ye = a + bt
 Method of Least Square
• Fitting a parabolic trend:
Y = a + bt + ct2
Where a – the trend value at the time point t = 0
b - the shape of the parabola at the origin
c – the shape of the curve

a= ∑ Y – c ∑ t2 b= ∑ Yt c= ∑ t2 Y – a ∑ t2
n ∑ t2 ∑ t2 ∑ t4

Fitting the third degree trend: Y = a + bt + ct2 +dt3

 Method of Least Square
• The expenditure per month for food in a boy’s hostel during
the years 2003 – 2009 are given below:

Year 2003 2004 2005 2006 2007 2008 2009

Exp 870 980 1040 950 1010 1080 1000

– Fit a straight line trend by the method of least squares and compute
the trend values
– What is the monthly increase or decrease in consumption?
– Eliminate the trend

Year Exp Coded t t2 ty Trend Detrended values

values ye y/ye * 100