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Introduction To Time Series Analysis

This document provides an introduction to time series analysis. It defines time series as observations indexed by time. Stationary time series have constant means and covariances over time, making them best for linear prediction. Non-stationary time series can be converted to stationary through removing trends, seasonality, and differencing. Common stationary time series models include AR, MA, and ARMA models which use lagged observations to predict future values. Other more advanced models include multivariate, ARIMA, SARIMA, and GARCH.

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102 views17 pages

Introduction To Time Series Analysis

This document provides an introduction to time series analysis. It defines time series as observations indexed by time. Stationary time series have constant means and covariances over time, making them best for linear prediction. Non-stationary time series can be converted to stationary through removing trends, seasonality, and differencing. Common stationary time series models include AR, MA, and ARMA models which use lagged observations to predict future values. Other more advanced models include multivariate, ARIMA, SARIMA, and GARCH.

Uploaded by

mary joy apan
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We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Time Series

Analysis
InKwan Yu

Time Series?

A set of observations indexed by time t


Discrete and continuous time series

Stationary Time Series

(Weakly) stationary

The covariance is independent of t for


each h

X ( X t , X t h ) E ( X t )( X t h )

The mean is independent of t

E( X t )

Why Stationary Time


Series?

Stationary time series have the


best linear predictor.
Nonstationary time series models
are usually slower to implement for
prediction.

Converting Nonstationary
Time Series to Stationary
Time Series

Remove deterministic factors

Trends

Polynomial regression fitting


Exponential smoothing
Moving average smoothing
Differencing (B is a back shift operator)

X t X t 1 (1 B ) X t

Converting Nonstationary
Time Series to Stationary
Time Series

Remove deterministic factors

Seasonality (usually combined with


trends removal)

X t mt st Yt

Differencing

d X t X t d (1 B ) X t
d

Converting Nonstationary
Time Series to Stationary
Time Series

Example

Converting Nonstationary
Time Series to Stationary
Time Series

Converting Nonstationary
Time Series to Stationary
Time Series

After conversion, remaining data


points are called residuals
If residuals are IID, then no more
analysis is necessary since its
mean value will be the best
predictor

Wold Decomposition

Stationary time series can be


represented as the following

X t j Z t j Vt ,
j 0

{Z t } ~ WN (0, ),
Cov ( Z t , Vt ) 0,
Vt : Deterministic,

j ,
2

Stationary Time Series


Prediction

Pn is a prediction function of Xn+h


with forward lag h from Xn.
Pn X n h a0 a1 X n an X 1

The prediction error is measured in


the minimum mean square

S (a0 , , an ) E ( X n h (a0 a1 X n an X 1 )) 2

Stationary Time Series


Prediction

Since S is a quadratic function, the


minimum value will be obtained
when all the partial derivatives are
0.
S (a0 , , an )
a j

0, j 0, n

Stationary Time Series


Prediction

In another form

Stationary Models

AR
X(AutoRegressive)
t 1 X t 1 p X 1 p Z t ,

Z t ~ WN (0, ),
2

( X s , Z t ) 0, s t.

PnARs
X n 1 predictor
1 X n p X n 1 p

Stationary Models

ARMA

Reduces large autocovariance


functions
A transformed linear predictor is used

Other Models

Mutivariate Cointegration
ARIMA
SARIMA
FARIMA
GARCH

References

Introduction to Time Series and


Forecasting 2nd ed., P. Brockwell and
R. Davis, Springer Verlag
Adaptive Filter Theory 4th ed., Simon
Haykin, Prentice Hall
Time Series Analysis, James Douglas
Hamilton, Princeton University Press

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