Time Series

Lecture 4: Models for stationary time series

Semester 6A
Program Studi Matematika
Fakultas Sains dan Teknologi
UIN Syarif Hidayatullah Jakarta
2015/2016

Contents

Moving average: MA(1), MA(2),,MA()

Autoregressive: AR(1), AR(2),,AR()

Autoregressive moving average: ARMA(, )

Moving average of order 1 MA(1)

Moving average of order 1 can be expressed as:

= 1 where ~ 0, 2

Moving average of order 1 MA(1)

Moving average of order 1 can be expressed as:

= 1 where ~ 0, 2

Clearly = 0 and Var = 2 (1 + 2 )

Autocovariance function:

, 1 = 1 , 1 2
= 1 , 1 = 2
, 2 = 1 , 2 3 = 0
Similarly, , = 0, whenever 2

Moving average of order 1 MA(1)

In general,
2 1 + 2 , = 0
= ( , ) =
2 ,
=1
0,
>1
1,
= ( , ) = /(1 + 2 ),
0,

=0
=1
>1

Moving average of order 1 MA(1)

Numerical values for versus 1 :

Moving average of order 1 MA(1)

Simulated MA(1) series with = -0.9 and normally distributed

white noise 1 = 0.497 (moderate strong positive correlation
at lag 1)

-3

-2

-1

Yt

20

40

60
Time

80

100

120

Moving average of order 1 MA(1)

Simulated MA(1) series with = -0.9 and normally distributed
white noise 1 = 0.497 (moderate strong positive correlation
at lag 1)

-3

-3

-2

-2

-1

-1

Yt

Yt

-3

-2

-1

0
Yt

-3

-2

-1

0
Yt

Moving average of order 1 MA(1)

Simulated MA(1) series with = 0.9 and normally distributed

white noise 1 = 0.497 (moderate strong negative
correlation at lag 1)

-4

-2

Yt

20

40

60
Time

80

100

120

Moving average of order 1 MA(1)

Simulated MA(1) series with = 0.9 and normally distributed
white noise 1 = 0.497 (moderate strong negative
correlation at lag 1)

-4

-4

-2

-2

Yt

Yt

-4

-2

0
Yt

-4

-2

0
Yt

Moving average of order 2 MA(2)

Moving average of order 2 can be expressed as:

= 1 1 2 2

Moving average of order 2 MA(2)

Moving average of order 2 can be expressed as:

= 1 1 2 2

= 0
0 = = 1 1 2 2 = (1 + 1 2 + 2 2 ) 2
1 = , 1

= 1 1 2 2 , 1 1 2 2 3
= 1 1 , 1 + 2 2 , 1 2
= 1 + 1 2 2

Moving average of order 2 MA(2)

2 = , 2
= 1 1 2 2 , 2 1 3 2 4
= 2 2 , 2

= 2 2

Thus, for an MA(2) process,

1 + 1 2
2

2,

=1

2,

=2

1 + 1 + 2
2
= ( , ) =
1 + 1 + 2
0,

>2

Moving average of order 2 MA(2)

Let 1 = 1 and 2 = 0.6:

Moving average of order 2 MA(2)

Let 1 = 1 and 2 = 0.6:

= 1 + 0.62

We have

1 =

1 + 1 2

1 + 1(0.6)
=
= 0.678
2
2
1 + 1 + 0.6

1 + 1 2 + 2 2
2
0.6
2 =
2
2 = 1 + 12 + 0.6
1 + 1 + 2

= 0.254

Moving average of order 2 MA(2)

-4

-2

Time plot of MA(2) process with 1 = 1 and 2 = 0.6

Yt

20

40

60
Time

80

100

120

Moving average of order 2 MA(2)

2 = 0.254
4
2
0
-4

-2

Yt

0
-2
-4

Yt

1 = 0.678

-4

-2

0
Yt

-4

-2

0
Yt

0
-2
-4

Yt

Moving average of order 2 MA(2)

-4

-2

0
Yt

Moving average of order q MA(q)

Moving average of order q can be expressed as:

= 1 1 2 2

= 0
0 = Var = 2 (1 + 1 2 + 2 2 + + 2 )
1,

= , =

=0

+1 +1 +2 +2 ++
2

1+1 +2 ++

0,
where the numerator of is just

= 1,2, ,
>