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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)

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ARIMA/GARCH (1,1) MODELLING AND FORECASTING FOR A GE STOCK
PRICE USING R

Varun Malik
Dyal Singh College
University of Delhi India
varunmalikphy@gmail.com

ABSTRACT

This article attempts to present a basic method of time series analysis, modelling and forecasting
performance of ARIMA, GARCH (1,1) and mixed ARIMA - GARCH (1,1) models using historical daily
close price downloaded through the yahoo finance website from the NASDAQ stock exchange for GE
company (USA) during the period of 2001 to 2014. This paper also presents a brief analysis technique
introduction to R to build up graphing, simulating and computing skills to enable one to see models in
economics in a unified way. The great advantage of R compiler is that it is free, extremely flexible and
extensible. It uses data that can be downloaded from the internet, and which is also available in different
R packages. This article provides discuses in modeling and forecasting briefly and simply. This paper
provides short details the R command lines and output. This article is written to be useful for learning time
series analysis on basic different levels as well as a research purpose for beginners who beginning the
analysis of time series data in the various scientific and statistical research approaches. ARIMA/GARCH
(1,1) model is applied to observed the forecasting values of low and high stock price (in USD) for GE
company. The results obtained in this paper are based on the work of [10].

Keywords: ARIMA/GARCH models, time series models, forecasting, R

INTRODUCTION series analysis quantifies the main


In time series are analyzed to understand observation findings from data and the
behavior of the past data points and to random variable. This reason, combined
predict the future values on the basis of with improved computing, technical and
past values, enabling analysis's or statistical ideas, have made time series
decision makers to make properly methods widely applicable in scientific
informed decisions for others. A time and statistical research approach in
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


governments and private sectors. In most A sequence of random variables


branches of scientific and statistical published at regular sampling intervals is
research department in private and sometimes referred to as a discrete-time
government sectors, there are variables stochastic process, though the shorter
measured approaches sequentially in name time series model is often
time. Financial/Banking sector record preferred. The theory of stochastic
interest rates as well as exchange rates processes is vast and may be studied
each day. The government statistics without necessarily tting any models
department compute and analyze the over time series data. However, our aim
countrys GDP on a yearly basis and is to more applied and directed towards
other economic data. The weather model tting and forecasting the data
department publishes day to day using R computational techniques.
temperatures and air velocity diagram for The main features of various time series
capital cities and in rural areas from are to detect the trends and seasonal
around the world. Meteorological variations that can be modelled
department record weather parameters at deterministically with respect to
many dierent sites with different mathematical functions of time. But,
instrument such as Weather radar and another important feature of most of the
optical rain gauge meter and etc. When time series is that observations close
such variable is measured sequentially in together in time tend to be correlated.
time over or at a regular interval, known Some of the methodology in a time series
as the sampling interval, the resulting analysis is focused on explaining this
data come from a time series. correlation factor and the main features
Observations that have been collected in the data using appropriate statistical
over regular sampling intervals from a models and descriptive methods. Once an
historical time series. In this paper, we accurate model is observed and tted to
give a basic but useful computational and data values, then researcher used the
statistical approach in which the model to forecast future values, or
historical stock price series are treated as generate simulations, to guide planning
realizations of sequences of random decisions and future prediction. Fitted
variables.
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


models are also used as a basis for price prediction. We begin with some
statistical tests. basic thoughts about how to store and
Finally, a tted statistical model provides process time series data using R
a concise and informative summary of software.
the main characteristics of a time series,
Despite the fact that the auto regressive
which can often be essential for
integrated moving average (ARIMA)
researcher and scientists and financial
technique is powerful and exible also
analysis. Sampling intervals may be
but it is not able to handle the volatility
dier in their relation to the data. The
and nonlinearity that are present in the
data may have been aggregated (for
data series. Some previous studies
example, the number of foreign
showed that generalized autoregressive
passengers reaching per day/month/year)
conditional heteroskedatic (GARCH)
or sampled (as in a daily/weekly/monthly
models are used in time series
basis time series of trade share prices). If
forecasting to handle volatility in the data
data are sampled, the sampling interval
series. [5][6][8].
must be short enough for the time series
to provide a very close approximation to In the next section we will discuss the
the original continuous signal when it is methodology and data preparation. In
interpolated. In a volatile share market, particular, Time series and R analysis
close of historical prices may not suce packages have been discussed in brief
for interactive trading but will usually be in sections 3, we have discussed
adequate to show the nature of trends stationary, non stationary and estimation
and movement of the stock market price of linear trend (GLM) and ACF and
over several years [1] [2] [3] PACF plots respectively in section 4.
The objective of this paper is to provide Then, in section 5, selection of ARIMA
a procedure of modelling and model and in section 6 GARCH (1,1)
forecasting method in terms of have been discussed. In section 7, we
ARIMA/GARCH modelling for have obtained the ARIMA/ GARCH
researchers by means of statistical R (1,1) model performance for GE stock
applications. Furthermore, we have price. Finally, we conclude this paper in
shown how to use R to find these stock section 8.
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


METHODOLOGY AND DATA xed interval of time, can be represented


as under the packages ts. we used
IT is assumed that you have installed R
historical stock price data over the
software on your computer/laptop or
period 2001 to 2015 and stored the data
machine, and it is suggested that you
in the .csv le .The function read.csv()
work through the examples, making sure
comes to read data from .csv le which
your output agrees with the results. If
stored on your computer and laptop .
you do not have R, then it can be
Notice that the rst row contains the
installed free of charge from the Internet
names of the columns namely Date, the
site www.r-project.org. It is also
date information is in the rst column
recommended that you have some
with the format dd/mm/YYYY, stock
familiarity with the basics statistical
price in the second column namely close
packages of R, [1].
.The rst step of identication is to check
In this analysis, we used some of the the occurrence of a trend in data series
time series and forecasting packages movement by plotting time series which
such as zoos, xts, ts, astsa, fts, and is as shown in Figure 1 . From the
forcast. For representing irregularly plotting, it can be seen that the data time
spaced time series, the packages series does not vary in a xed level or
timeSeries, zoo and xts are mostly used not which indicates that the series is non
in time series analysis. In these packages, stationary and stationary in both mean
timeSeries objects are the core data and variance, as well as exhibits an
objects. But this timeSeries objects are nature of trends. Time series are shown
not frequently used as zoo and xts in gure 1 as well as figure 2.
objects for representing time series data. General Electric ,GE, is an
A very exible time series class is zeileis American multi national company
ordered observations (zoo) created by incorporated in New York USA. The
Achim Zeileis and Gabor Grothendieck company operates through the following
and available in the package zoo on segments i.e., Power & Water, Oil and
CRAN , [1][10][11][12]. Gas, Aviation, Healthcare, Transportatio
n and Capital which cater to the needs of
In this study, A Regularly spaced time
services, Medical devices, Life
series structure, data are arranged with a
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


Sciences, Pharmaceutical, Automotive, S because we think there are the most


oftware widely used packages. Before using
Development and Engineering industries statistical objects in r software, we need
, [1][10][11][12]. (Refer Fig. 1) to install and load the appropriate
statistical and forcasting package (if you
WORKING WITH TIME SERIES have already installed it, you only need
DATA to load it) using the appropriate
The native R classes suitable for storing command, [1][2][3][9].
time series data include vector, matrix ,
data.frame, and ts objects. But the types ESTIMATING A LINEAR TREND
of data that can be stored in these objects Consider the Stock price series is shown
are narrow; furthermore, the methods in Figure 2.The data are mean stock close
provided by these representations are price index from 2001 to 2014. In
limited in research and analysis scope. particular data are deviations , measured
There exist specialized objects that deal in USD. We note that an apparent
with more general representation of time upward trend in the series during this
series data as zoo, xts, or time Series period. A simple kind of generated series
objects, available from packages of the might be a collection of uncorrelated
same name. It is not necessary to create random variables, wt with mean 0 and
time series objects for every time series nite variance 2w. The time series
analysis problem, but more sophisticated generated from uncorrelated variables is
analyses require time series objects. You used as a model for noise in statistical
could calculate the mean or variance of research purpose, where it is called white
time series data represented as a vector in noise; The designation white originates
R, but if you want to perform a seasonal from the analogy with white light and
decomposition using decompose, you indicates that all possible periodic
need to have the data stored in a time oscillations are present with equal
series object. .[1][10][11][12] strength.
In the following examples, we assume Now We express simple linear regression
you are working with zoo,ts to estimate that trend by tting the model
forcast,timeseries ,stats objects and etc. over time series xt = 1 + 2t + wt,t =
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


2001..2014. where 1 and 2 are eliminate a quadratic trend and so on. For
regression coecient wt is random error other information, De-trend, dierence,
or noise . In general, it is necessary for log and dierence of log series of data
time series data to be stationary, so are plotted in gure 3.The dierencing
averaging lagged products over time, as technique is an important component of
in above paragraph. With time series the ARIMA model of Box and Jenkins
data, it is the dependence between the (1970), [14][15] . (Refer Fig. 3)
values of the series that is important to
measure; we must, at least, be able to ACF and PACF plots
estimate autocorrelations with precision.
ACF and PACF are the core of ARIMA
Also, the stock price series shown in
modelling. The box Jenkins method
Figure 2 contains some evidence of a
provides a way to identify an ARIMA
trend over time. The rst step in
model according to autocorrelation and
modelling time index data is to convert
partial autocorrelation graph of the series
the stationary time series. In order to
as shown in gure 4 (panel a, b, c and d).
convert non stationary series to
The parameters of ARIMA consist of
stationary , dierencing method can be
three components, namely
used in which the series is lagged 1 step
Autoregressive parameter (p), Number of
and subtracted from original series.
dierencing (d), and Moving average
(Refer Fig. 2)
parameters (q) In order to to identify
The rst dierence is denoted as xt = xt
ARIMA model we need to follow these
xt1 The rst dierence of data are also
basic steps are mentioned below:
shown in gure 3, produces dierent
result than removing trend by de- Step 1:- If ACF cut o after lag n and
trending via regression. The dierenced PACF dies down, then identify the order
series does not contain the long middle of MA (q) in ARIMA (0, d, q) model
cycle observed in de-trended time series. Step 2:- if ACF dies down and PACF cut
Over dierencing can cause the standard o after lag n then identify AR (p) in
deviation to increase. First dierence is ARIMA (p, d, 0) model
an example of a linear lter to eliminate Step 3:- if ACF and PACF die down
a trend and second dierence can means, then we get mixed ARIMA (p, d,
ELK ASIA PACIFIC JOURNAL OF MARKETING AND RETAIL MANAGEMENT

ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


q) model, time series needs to moving average (ARIMA) model


dierencing (d). popularized in the landmark work by
Box and Jenkins (1970), [14] [15].
ACF and PCF are a primary tool for
clarifying the relations that may occur ARIMA MODEL
within and between time series at various
ARIMA is one type of models in the
lags. In the beginning of tting ARIMA
Box-Jenkins model. The Box - Jenkins
model, the idea of model
methodology includes four iterative steps
parameterization as possible yet still be
of model identication, parameter
capable of explaining the series (i.e., p
estimation, diagnostic checking and
and q should be 3 or less, or the total
forecasting. In identication step, data
number of parameters should be less than
transformation is required to make the
3 in view of Box-Jenkins method) based
series stationary. The stationary process
on gure 4. (Refer Fig. 4)
is a foundation in building an ARIMA (p,
The more parameters the greater noise d, q) model. When the observed time
that can be introduced into the model and series presents trends and non seasonal
hence standard deviation. Classical behavior, data transformation and
regression is often insucient for dierencing are applied to the data series
explaining all of the interesting dynamics in order to stabilize variance and to
of a time series. The ACF and PACF of remove the trend before an ARIMA
the residuals of the simple linear model is applied. However, In order to
regression t of the data reveals understand to the brief mechanism of
additional structure in the data that the ARIMA (p, d, q) models are also capable
regression did not capture. Instead, the of modelling a wide range of seasonal
introduction of correlation as a data and non seasonal data. A seasonal
phenomenon that may be generated ARIMA model is formed by including
through lagged linear relations leads to additional seasonal terms in the ARIMA
proposing the autoregressive (AR) model models. In brief, The model is written as
and moving average (MA) models. follows taken from [16]:
Adding non stationary models to the mix
leads to the autoregressive integrated
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


lags. The modelling procedure is almost


the same as for non-seasonal data,
except that we need to select seasonal
AR and MA terms as well as the non-
seasonal components of the model. In
Where am = number of periods per another way, The R function, auto.
season. We use the uppercase notation Arima function can help to select all
for the seasonal parts of the model, and three parameters, p, d, and q, and
lowercase notation for the non-seasonal predict and forecast function can also
parts of the model, [16]. help in forecasting the future values. It
may be useful to have an automatic
The seasonal part of the model consists
method for selecting an ARIMA model
of terms that are very similar to the non-
parameters and forecasting, [2] [3] [4]
seasonal components of the model, but
[5]. (Refer Fig. 5) In addition to Box-
they involve back shifts of the seasonal
Jenkins method, the autocorrelation
period. For example, an ARIMA (p, d,
function (ACF) and the partial
q) (P, D, Q) 4 model (without a
autocorrelation function (PACF) of the
constant) is for quarterly data (m=4) and
sample stock price data are used to
can be written as [16]
identify the order of ARIMA (p, d, q)
model. The ordered model then is
statistically checked whether it
accurately describes the series or not.
The model ts well if the P-value of its
parameter is statistically signicant, as

Hence , An ARIMA (p, d, q) (P,D,Q) well as its residuals are generally small,

process can be tted to data using the R randomly distributed, and contain no

function Arima with the parameters useful information, where at this point,

order set to c(p, d, q) based on ACF and the model can be used for forecasting.

PACF plots. In considering the Akaike Information Criterion (AIC)

appropriate orders for an ARIMA provides another way to check and

model, restrict attention to the seasonal identify the ARIMA (p.d, q) model.
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AIC is mentioned as shown in table 1. a time series are dierent from 0. In


According to table 1 the p-values for all other words, if the result rejects the
parameters are less than 0.05, indicating hypothesis, this means the data is
that they are statistically significant. In independent and uncorrelated;
addition, p-value of the Box- Ljung test otherwise, there still remains serial
is greater than 0.05, and so we cannot correlation in the series and the model
reject the hypothesis that the needs more modication. The
autocorrelation of residuals is different procedure includes observing residual
from 0. The model thus adequately plot and its ACF and PACF diagram,
represents the residuals. Due to the and check Ljung- Box result. If ACF
scope of this paper, we used the and PACF of the model residuals show
performance GARCH (1,1) with no signicant lags, the selected model is
ARIMA (2,1,2). appropriate, [14] [15]. (Refer Fig. 6)
Using ARIMA(2,1,2) as selected model,
According to this procedure, the model
the mathematical equation for such
with lowest AICc will be selected.
model as follows :
When perform time series analysis in R,
the program will provide AICc as part
of the result. Based on AICc, we should
select manually ARIMA (2,1,2) model.
The significancy of ARIMA residuals
Based on ARIMA (2,1,2), High and
and QQ plot are shown in figure5 and
low price corresponding to month,
figure 6. In figure 6, the red line
indicating with numeric value over the
indicates the fitted line and blue line
line as shown in figure 6a. In the figure,
presents the predicted values for 12
X axis indicates the forecast low price
months ahead. (Refer Table 1)
and y axis presents the predicted high
In addition, the Ljung - Box test also prices corresponding to month

provides a dierent way to double check indicating on a curved line. (Refer Fig.

the model. Basically, Ljung- Box is a 6a)

test of autocorrelation in which it


veries whether the autocorrelations of
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


GARCH(1,1) MODEL independent with zero mean, normally


Although ACF and PACF of residuals distributed, and ACF and PACF of
have no significant lags, the time series squared residuals displays no significant
plot of residuals shows some cluster of lags, [10].
volatility in figure 5. It is important to According to the plots of squared
note that ARIMA is a method to linear residuals are shown in figure 5. The
model the data and the forecast width squared residuals plot shows clusters of
remains constant because the model does volatility at some points in time. ACF
not reflect recent changes or incorporate seems to die down. PACF cuts off after
new information. In other words, it lag 10 even though some remaining lags
provides best linear forecasts for the are significant. The residuals therefore
series, and thus plays little role in show some patterns that might be
forecasting model nonlinearly. In order modeled. ARCH/GARCH (1,1) is
to model volatility, ARCH/GARCH (1,1) necessary to model the volatility of the
method is used. Firstly, check if residual series. As indicated by its name, this
plot (figure 5) displays any cluster of method concerns with the conditional
volatility. Next, observe the squared variance of the series. Followings are the
residual plot (figure 5). If there are based on the plots of squared residuals: .
clusters of volatility, ARCH/GARCH The squared residuals plot shows
(1,1) should be used to model the clusters of volatility at some points in
volatility of the series to reflect most time. ACF seems to die down. PACF
recent changes and fluctuations in the cuts off after lag 10 even though some
series. Finally, ACF and PACF of remaining lags are significant The
squared residuals will help confirm if the residuals therefore show some patterns
residuals are not independent and can be that might be modeled. ARCH/GARCH
predicted. As mentioned earlier, a strict (1,1) is necessary to model the volatility
white noise can- not be predicted either of the series. Noted that we fit
linearly or nonlinearly while the general ARCH/GARCH (1,1) to the residuals
white noise might not be predicted from the ARIMA model selected
linearly yet done so nonlinearly. If the previously, not to the original series or
residuals are strict white noise, they are differences log series because we only
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want to model the noise of ARIMA figure 6 and 6a. The Log price as well
model. ARIMA 1 year forecasting and as low and high values at the 95 %
QQ plot are shown in figure 6., [5] [6] confidence level are also plotted as
[7] [8]. (Refer Fig. 7 or 7a) shown in figure 7 which gives an
important result with high and low values
Mathematical equation for GARCH(1,1)
for future purpose. The conditional
model is
variances plotted in figure 7, which

ht = 0.0002159 + 0.15535402t-- 1 + 404955595 2t--2 reflects the volatility of the time series
over the entire period from 2001 to 2014.
. High volatility in close price is closely
ARIMA GARCH(1,1)
related to a period where the stock price
PERFORMANCE
tumbled. In order to make the final check
There is two-stage procedure in the
on the model is to provide at Q-Q Plot of
proposed combined model of ARIMA
residuals of ARIMA-ARCH (1,1) model
and GARCH(1,1). In the first stage, the
as shown in figure 7. Q-Q plot is plotted
best of the ARIMA models is used to
directly using the R command to check
modelled the linear data of time series
the normality of the residuals. The plot
and the residual of this linear model will
shows that residuals seem to be roughly
contain only the nonlinear data as shown
normally distributed, although some
in figure 6 and 6a . In the second stage,
points remain off the line. However,
the GARCH(1,1) is used to modelled the
compared to residuals of ARIMA model
nonlinear patterns of the residuals. This
in figure 6, those of mixed model are
combined model which combines an
more normally distributed. [10]
ARIMA model with GARCH(1,1) error
The mathematical equation to complete
components is applied to analyze the
a model of ARIMA (2,1,2) as well as
univariate series and to predict the values
ARCH (1,1) is written below
of approximation series
[9][10][11][12][13]. ( Yt - Yt-1 ) - ht = 0.1390 (Yt-1-Yt-2) +

In order to estimate the validity of mixed 0.8438(Yt-2-Yt-3) - 0.0420 t-1 + t-2+t


+0.0002159 + 0.15535402t-- 1 + 404955595 2t--2
model, ARIMA forecast obtained using
R methodology and then add conditional
variance to ARIMA forecast as shown in
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Note that the R compiler will exclude new data and estimate parameters again
constant when fitting ARIMA for series for forecasting. [10]
needed differencing. [10]
The variance of stock price in ARIMA
It is noted that the 95% confidence
model is unconditional variance and
intervals of ARIMA (2,1,2) are wider
remains constant. ARIMA is applied for
than that of the combined model ARIMA
stationary series and therefore, non-
(2,0,2) ARCH (1,1). ARIMA /GARCH
stationary series should be transformed.
forecasting tells us that the share price
Additionally, ARIMA and GARCH
moves between 22.19 to 34.04USD.
models are often used together, namely
This is because the latter reflects and
ARIMA/GARCH (1,1) model.
incorporate recent changes and volatility
ARCH/GARCH (1,1) is a method to
of stock prices by analyzing the residuals
measure the volatility of the series, or,
and its conditional variances (the
more especially, to model the noise term
variances affected as new information
of ARIMA model. ARCH/GARCH (1,1)
comes in) [10].
incorporates new information and
analyses the series based on conditional
CONCLUSION
variances where users can forecast future
In this work, time domain method is a
values with up-to-date information to
useful technique to analyze the financial
making money. The forecast interval for
time series for predicting the stock price
the mixed model is closer than that of
to making money. There are some basic
ARIMA-only model.
points in forecasting based on combined
ARIM-ARCH/GARCH (1,1) model that ACKNOWLEDGEMENTS
need to take into account. Firstly,
We would like to thank the Dyal Singh
ARIMA (p, d, q) model focused on
College, University of Delhi for
analyzing time series linearly and it does
providing the computational facility
not reflect recent changes as new
during the course of this work.
information is available in the data.
Therefore, in order to more accurate the
model, researches need to incorporate
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


London, New York, DOI [13] J. D. Cryer and K. -S.


10.1007/978-0-387- 88698-5, Chang, Time Series Analysis
2009. With Applications in R, Springer,
2008.
[10] Ly Pham, Time Series [14] G M Ljung and G E P Box ,
Analysis with ARIMA On a measure of lack of fit in
ARCH/GARCH model in R, L- time series models.Biometrika,
Stern Group, 2013 65, 2, pp. 297 - 303,1978.
[11] Varun Malik, Ranjit Kumar, [15] Box, G. E. P., and D. A.
Abid Hussain, Rather Pierce. 1970. Distribution of
BAYESIAN ESTIMATION OF residual autocorrelations in
GARCH autoregressive-integrated
Coefficientsof Inr/Usd Exchange Moving average time series
Rate, Elk Asia Pacific Journal Of models. Journal of the American
Finance And Risk Statistical Association 65: 1509
Management, Issn 2349-2325 1526.
(Online); Doi: [16] Rob J
10.16962/Eapjfrm/Issn. 2349- Hyndman,GeorgeAthansopoulos,
2325/2015; Volume 7 Issue 1 www.google.com/fpp
(2016)
[12] John C. Hull, Options,
Futures and Other Derivatives,
Seventh Ed., Pearson Prentice
Hall, 2009.
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ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)



LIST OF FIGURES:

Figure 1: Time series plot

The given hint helps to produce figure as same as figure 1:


>>data <- read.csv("filename.csv")
>>datat_ts <-ts (data$close, start=c(YYYY,MM), end=c(YYYY,MM) ,frequency = N)
>>plot(data_ts, type="l", ylab = "data", xlab = "Time",main ="Time series")

Figure 2: Time series deviations shown with fitted linear trend line

The given hint helps to produce figure look likes figure 2:


>>plot(data_ts,type="l",ylab = " close price", main="Time Series with trend")
>>newtime<-time(data_ts,start=c(YYYY),end=c(YYYY),frequency=N)
>>fit<-(reg=glm(data_ts ~time(data_ts),na.actio=NULL))
>>abline(fit,col='blue',lty=1:10)
ELK ASIA PACIFIC JOURNAL OF MARKETING AND RETAIL MANAGEMENT

ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


Figure 3: De trended (panel a), differenced ( panel b), log series(panel c) and
differenced log series(panel d) shown in figure

The given procedure helps to create figure look likes figure 3:


>>fit<-(reg=glm(data_ts~time(data_ts),na.actio=NULL))
>>par(mfrow=c(2,2))
>>plot(resid(fit),main="(a) detrended series",ylab="")
>>plot(diff(meandata),type="l",main="(b)differenced series",ylab="")
>>plot(log(meandata),main="(c)log series",ylab="")
>>plot(diff(log(meandata)),main="(d)diff.log series",ylab="")

Figure 4: ACF and PACF plots

The given procedure helps to create figure look likes figure 4:


par(mfrow=c(3,2))
acf(data_ts,main =" (a) ACF original series")
pacf(data_ts,main ="(b)PACF original series",ylab="")
acf(resid(fit),main ="(c) ACF detrended series",ylab="")
pacf(resid(fit),main ="(d) PACF detrended series",ylab="")
acf(diff(data_ts),main="(e) ACF differenced series",ylab="")
pacf(diff(data_ts),main ="(f) PACF differenced series",ylab="")
ELK ASIA PACIFIC JOURNAL OF MARKETING AND RETAIL MANAGEMENT

ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


Figure 5: acf and pacf arima residuals

The given R codes helps to create figure look likes figure 5:


>>fit<-(reg=lm(data_ts~time(data_ts),na.actio=NULL))
>>difff<-diff(log(data_ts))
>>f405 <-Arima(difff,seasonal=list(order=c(2,0,2),period=12),include.drift=FALSE)
>>plot(f202$residuals,lag.max=100,main=" arima residual (a)",ylab="")
>>plot((f202$residual^2),lag.max=100,main="arima Squared Residuals(b)",ylab ="")
>>acf(f202$residuals,lag.max=100,ylim=c(-1,1),main="acf arima residual (c)",ylab="")
>>pacf(f202$residuals,lag.max=100,ylim=c(-1,1),main="pacf arima residual(d)",ylab="")
>>acf((f202$residual^2),lag.max=100,main="acf Squared Residuals(e)",ylim=c(-1,1),ylab="")
>>pacf((f202$residual^2),lag.max=100,main="pacf Squared Residuals (f)",ylim=c(- 1,1),ylab="")

Figure 6: ARIMA residuals

The given R codes helps to create figure look likes figure 6:


f410<-Arima(logdata,seasonal=list(order=c(2,0,2),period=6),include.drift=F)
par(mfrow=c(1,2))
plot(forecast(f202),main=" forcast model",ylim=c(3.1,3.6))
lines(fitted(f202),col="red")
qq=f202$residuals
qqnorm(qq,main='ARIMA residuals')
qqline(qq)
ELK ASIA PACIFIC JOURNAL OF MARKETING AND RETAIL MANAGEMENT

ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)


Figure 6a: Forcast price for 2015

The given R command lines helps to create figure look likes figure 7:
>>par(mfrow=c(2,2))
>>plot(log(data_ts),type='l',main='Data')
>>arima202<-Arima(logdata,seasonal=list(order=c(2,0,2),period=6),include.drift=TRUE)
>>fit202<-fitted.values(arima203)
>>low<-fit202-1.76*sqrt(ht.arch11)
>>high<-fit202+1.76*sqrt(ht.arch11)
>>plot(data_ts,type='l',main='Log price,Low,High')
>>lines(low,col='red')
>>lines(high,col='blue')
>>ht.arch11<-arch11$fit[,1]^2 #use 1st column of fit
>>plot(ht.arch11,main='Conditional variances')
>>archres<-res.f202/sqrt(ht.arch11)
>>qqnorm(archres,main='ARIMA-GARCH Residuals')
>>qqline(archres)

Figure 7: ARIMA GARCH(1,1) residuals


ELK ASIA PACIFIC JOURNAL OF MARKETING AND RETAIL MANAGEMENT

ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)



The output of Garch(1,1) model as shown in figure7a:

Figure7a: GARCH(1,1) summary


ELK ASIA PACIFIC JOURNAL OF MARKETING AND RETAIL MANAGEMENT

ISSN 2349-2317 (Online); DOI: 10.16962/EAPJMRM/issn. 2349-2317/2015; Volume 8 Issue 1 (2017)



LIST OF TABLES:

Table 1: AIC values for (ARIMA, GARCH)

Arima(pdq) AIC ARCH (p, q) * AIC P value*


(Ljung - Box test)
Arima - Arch (00) Not done Not done
(000) 759.48
Arima - Arch (01) -798.0746 0.6248
(101) 757.40
Arima - Arch (02) -797.000 0.9112
(201) 755.75
Arima - Arch (03) -789.859 0.8964
(301) 754.41
Arima - Arch (04) -782.745 0.9118
(102) 756.10
Arima - Arch (05) -776.335 0.8237
(202) 760.85
Arima - Arch (06) -768.186 0.7979
(302) 757.08
Arima - Arch (07) -763.061 0.8378
(103) 754.69
Arima - Arch (08) -755.636 0.8032
(203) 755.23
Arima - Arch (09) -801.266 0.7877
(303) 757.08