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STATIONARY TS MODELS
Remark 4.9. The MA(q) process can also be written in the following equivalent
form
Xt = θ(B)Zt , (4.10)
where the moving average operator
θ(B) = 1 + θ1 B + θ2 B 2 + . . . + θq B q (4.11)
defines a linear combination of values in the shift operator B k Zt = Zt−k .
4.3. MOVING AVERAGE PROCESS MA(Q) 67
which shows that the autocovariances depend on lag, but not on time. Dividing
γ(τ ) by γ(0) we obtain the autocorrelation function,
1 for τ = 0,
θ1 +θ2 1 θ22 for τ = ±1,
1+θ1 +θ2
ρ(τ ) = θ2
1+θ12 +θ22
for τ = ±2
0 for |τ | > 2.
MA(2) process is a weakly stationary, 2-correlated TS.
Figure 4.5 shows MA(2) processes obtained from the simulated Gaussian white
noise shown in Figure 4.1 for various values of the parameters (θ1 , θ2 ).
The blue series is
xt = zt + 0.5zt−1 + 0.5zt−2 ,
while the purple series is
xt = zt + 5zt−1 + 5zt−2 ,
Simulated MA(2)
10
-10
-20
10 30 50 70 90 time index
Figure 4.5: Two simulated MA(2) processes, both from the white noise shown in
Figure 4.1, but for different sets of parameters: (θ1 , θ2 ) = (0.5, 0.5) and (θ1 , θ2 ) =
(5, 5).
1.0
0.8
0.8
0.6
0.6
ACF
ACF
0.4
0.4
0.2
0.2
0.0
0.0
-0.2
-0.2
0 5 10 15 20 0 5 10 15 20
Lag Lag
(a) (b)
Figure 4.6: (a) Sample ACF for xt = zt + 0.5zt−1 + 0.5zt−2 and (b) for xt =
zt + 5zt−1 + 5zt−2 .
4.3. MOVING AVERAGE PROCESS MA(Q) 69
Also, the following theorem gives the form of ACF for a general MA(q).
Theorem 4.2. An MA(q) process (as in Definition 4.5) is a weakly stationary TS
with the ACVF
2 Pq−|τ |
γ(τ ) =
σ j=0 θj θj+|τ | , if |τ | ≤ q, (4.13)
0, if |τ | > q,
where θ0 is defined to be 1.
The ACF of an MA(q) has a distinct “cut-off” at lag τ = q. Furthermore, if q is
small the maximum value of |ρ(1)| is well below unity. It can be shown that
π
|ρ(1)| ≤ cos . (4.14)
q+2
Xt = Zt + θZt−1
whose ACF is
1, if τ = 0,
θ
ρ(τ ) = 1+θ 2
if τ = ±1,
0, if |τ | > 1.
For q = 1, formula (4.14) means that the maximum value of |ρ(1)| is 0.5. It can be
verified directly from the formula for the ACF above. Treating ρ(1) as a function
of θ we can calculate its extrema. Denote
θ
f (θ) = .
1 + θ2
Then
1 − θ2
f ′ (θ) = .
(1 + θ2 )2
The derivative is equal to 0 at θ = ±1 and the function f attains maximum at
θ = 1 and minimum at θ = −1. We have
1 1
f (1) = , f (−1) = − .
2 2
This fact can be helpful in recognizing MA(1) processes. In fact, MA(1) with
|θ| = 1 may be uniquely identified from the autocorrelation function.
70 CHAPTER 4. STATIONARY TS MODELS
However, it is easy to see that the form of the ACF stays the same for θ and
for θ1 . Take for example 5 and 51 . In both cases
1 if τ = 0,
5
ρ(τ ) = if τ = ±1,
26
0 if |τ | > 1.
Also, the pair σ 2 = 1, θ = 5 gives the same ACVF as the pair σ 2 = 25, θ = 15 ,
namely
(1 + θ2 )σ 2 = 26, if τ = 0,
γ(τ ) = θσ 2 = 5, if τ = ±1,
0, if |τ | > 1.
and
Xt = Yt + 5Yt−1 , Yt ∼ N (0, 1)
iid
are the same. We can observe the variable Xt , not the noise variable, so we can not
distinguish between these two models. Except for the case of |θ| = 1, a particular
autocorrelation function will be compatible with two models.
Zt = Xt − θZt−1 .
Zt = Xt − θZt−1
= Xt − θ(Xt−1 − θZt−2 )
= Xt − θXt−1 + θ2 Zt−2
= Xt − θXt−1 + θ2 (Xt−2 − θZt−3 )
= Xt − θXt−1 + θ2 Xt−2 − θ3 Zt−3
= ...
= Xt − θXt−1 + θ2 Xt−2 − θ3 Xt−3 + θ4 Xt−4 + . . . + (−θ)n Zt−n .
4.3. MOVING AVERAGE PROCESS MA(Q) 71
n−1
!2
X
(−θ)j Xt−j = E θ2n Zt−n
2
E Zt − −→ 0
n→∞
j=0
and we say that the sum is convergent in the mean square sense. Hence, we obtain
another representation of the model
∞
X
Zt = (−θ)j Xt−j .
j=0
for all t, where Zt ∼ W N(0, σ 2 ) and {ψj } is a sequence of constants such that
P ∞
j=−∞ |ψj | < ∞.
Remark 4.11. MA(∞) is a linear process with ψj = 0 for j < 0 and ψj = θj for
j ≥ 0, that is MA(∞) has the representation
∞
X
Xt = θj Zt−j ,
j=0
where θ0 = 1.
Note that the formula (4.15) can be written using the backward shift operator B.
We have
Zt−j = B j Zt .
Hence
∞
X ∞
X
Xt = ψj Zt−j = ψj B j Zt .
j=−∞ j=−∞
Denoting
∞
X
ψ(B) = ψj B j , (4.16)
j=−∞
4.4. LINEAR PROCESSES 73
∞
X
Xt = ψj Yt−j = ψ(B)Yt (4.17)
j=−∞
and " ! !#
∞
X ∞
X
E(Xt Xt+τ ) = E ψj Yt−j ψk Yt+τ −k
j=−∞ k=−∞
∞
X X∞
= ψj ψk E(Yt−j Yt+τ −k )
j=−∞ k=−∞
X∞ X∞
= ψj ψk γY (τ − k + j).
j=−∞ k=−∞
Corrolary 4.1. If {Yt } is a white noise process, then {Xt } given by (4.17) is a
stationary linear process with zero mean and the ACVF
∞
X
γX (τ ) = ψj ψj+τ σ 2 . (4.19)
j=−∞