TIME SERIES
ANALYSIS
MEANING &
DEFINITIONS
A time series is……
A set of data depending on the time
A series of values over a period of time
Collection of magnitudes belonging to different
time periods of some variable or composite of
variables such as production of steel, per capita
income, gross national income, price of
tobacco, index of industrial production.
Time is act as a device to set of common stable
reference point.
In time series, time act as an independent variable
to estimate dependent variables
Mathematical presentation of
Time Series
A time series is a set of observation
taken at specified times, usually at
‘equal intervals’.
Mathematically a time series is
defined by the values Y1, Y2…of a
variable Y at times t1, t2…. Thus,
Y= F(t)
CAUSES OF VARIATIONS IN
TIME SERIES DATA
Social customs, festivals etc.
Seasons
The four phase of business :
prosperity, decline, depression,
recovery
Natural calamities: earthquake,
epidemic, flood, drought etc.
Political movements/changes, war
etc.
IMPORTANCE OF
TIME SERIES
ANALYSIS
A very popular tool for Business
Forecasting.
Basis for understanding past
behavior.
Can forecast future activities/planning
for future operations
Evaluate current
accomplishments/evaluation of
performance.
Facilitates comparison
Time Series - Examples
Stock price, Sensex
Exchange rate, interest rate, inflation
rate, national GDP
Retail sales
Electric power consumption
Number of accident fatalities
COMPONENTS OF
TIME SERIES
WHAT IS COMPONENTS?
Characteristicmovements
or fluctuations of time
series.
Types of Components
• Secular Trend or Trend
1.
• Seasonal Variations/Fluctuations
2.
• Cyclical Variations/Fluctuations
3.
• Irregular Variations/Movements
4.
SECULAR TREND OR TREND
The general tendency of the data to
grow or decline over a long period of
time.
The forces which are constant over a
long period (or even if they vary they do
so very gradually) produce the trend.
For e.g., population change,
technological progress, improvement in
business organization, better medical
facility etc.
E.g., Formation of rocks
Downward trend-declining death rate
Upward trend-population growth
Mathematically trend may be Linear or
non-linear
PURPOSE OF
MEASURING
TREND
Knowledge of Study of other
Estimation
past behavior components
SEASONAL
VARIATIONS/FLUCTUATIONS
The component responsible for the regular rise
or fall (fluctuations) in the time series during a
period not more than 1 year.
Fluctuations occur in regular sequence
(periodical)
The period being a year, a month, a week, a
day, or even a fraction of the day, an hour etc.
Term “SEASONAL” is meant to include any kind of
variation which is of periodic nature and whose
repeating cycles are of relatively short duration.
The factors that cause seasonal variations are: (a)
Climate & weather condition, (b) Customs traditions &
habits
CHACTERISTICS/FEATURES OF
SEASONAL VARIATIONS
Regularity
Fixed proportion
Increase or Decrease
Easy fore cast
PURPOSE OF MEASURING
SEASONAL VARIATIONS
Analysis of past behavior of the series
Forecasting the short time
fluctuations
Elimination of the seasonal variations
for measuring cyclic variations
EXAMPLES OF SEASONAL
VARIATIONS
Crops are sown and harvested at certain
times every year and the demand for
the labour gowing up during sowing and
harvesting seasons.
Demands for wollen clothes goes up in
winter
Price increases during festivals
Withdraws from banks are heavy during
first week of the month.
The number of letter posted on
Saturday is larger.
CYCLIC VARIATIONS
Cycle refers to recurrent variations in
time series
Cyclical variations usually last longer
than a year
Cyclic fluctuations/variations are long
term movements that represent
consistently recurring rises and
declines in activity.
BUSINESS CYCLE
Consists of 4 phases: prosperity,
decline, depressions, recovery
purpose
Measures of past cyclical behavior
Forecasting
Useful in formulating policies in
business
IRREGULAR VARIATIONS
Also called erratic, random, or
“accidental” variations
Do not repeat in a definite pattern
Strikes, fire, wars, famines, floods,
earthquakes
unpredictable
CHARACTERISTICS
Irregular & unpredictable
No definite pattern
Short period of time
No Statistical technique
ANALYSIS OR
DECOMPOSITION OF
TIME SERIES
CONSISTS OF……
• Discovering
• Measuring
• Isolating
• Components of the time series
MATHEMATICAL MODELS OF .
TIME SERIES
Additive model Multiplicative model
1. We assume that the data is 1. We assume that the data is
the sum of the time series the product of the various
components. components.
Yt = T + S + C + I Yt = T× S ×C × I
2. If the data do not contain one 2. If trend, seasonal variation, or
of the components (e.g., cycle is missing, then the
cycle) the value for that value
missing component is zero. is assumed to be 1.
Suppose there is no cycle,
then Suppose there is no cycle, then
Yt = T + S + I Yt = T× S × I
3. The seasonal component is 3. The seasonal factor of
independent of trend, and multiplicative model is a
thus magnitude of the proportion (ratio) to the
seasonal swing is constant trends, and thus the
over time. magnitude of the seasonal
swing increases or decreases
according to the behavior of
trend
OVERVIEW
TIME SERIES
IMPORTANCE
COMPONENTS
ANALYSIS
MODELS
THANK YOU
