Time Series

Definition:
It is collection of items belonging to different time period of some economic
variables. Our aim is to identify that trend.
Component of Time Series:
Simple Trend Seasonal Trend
Graphical Method Simple Average Method
Method of Semi Averages Ratio to trend Method
Method of Moving Averages Ratio to Moving Average
Method of Least square Link Relative Method
1. Graphical Method (Free hand Method)
Example:
For the following data find the trend using Graphical method.
Year 2010 2011 2012 2013
Profit (in millions) 30.5 35 42.7 49.3
2. Method of Semi Averages
Example: (For even number of values)
For the following data find the trend using Semi averages method.
Year 2012 2013 2014 2015 2016 2017
Sales 25 32 39 44 51 60
Solution
Year Sales Semi avg
2012 25
2013 32 32
2014 39
2015 44
2016 51 51.6
2017 60
Example: (For odd number of values)
For the following data find the trend using Semi averages method.
Year 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sales 25 32 39 44 51 60 62 65 60
Solution
Year Sales Semi avg
2012 25
2013 32 35
2014 39
2015 44
2016 51(ignore)
2017 60
2018 62
2019 65 61.75
2020 60
3. Method of Moving Averages
Example:
For the following data find the trend using 3 years moving averages method.
Year 2012 2013 2014 2015 2016 2017
Sales 25 32 39 44 51 60
Solution
Year Sales 3 year sum 3 year avg 5 years sum 5 years avg
2012 25 - -
2013 32 96 96/3 = 32 -
2014 39 115 115/3 = 38.3
2015 44 134 134/3 = 44.67
2016 51 155 155/3 = 51.67 -
2017 60 - -
4. Method of Least squares
Example:
For the following data find the trend using 3 years moving averages method.
Year 2003 2004 2005 2006 2007 2008 2009
Profit 60 72 75 65 80 85 95
Solution
𝑌𝑒𝑎𝑟 𝑆𝑎𝑙𝑒𝑠(𝑦) 𝑥(2006) 𝑥𝑦 𝑥2 𝑦 ′ = 76 + 4.86𝑥
2003 60 -3 −180 9 61.42
2004 72 -2 −144 4 66.28
2005 75 -1 −75 1 71.14
2006 65 0 0 0 76
2007 80 1 80 1 80.86
2008 85 2 170 4 85.72
2009 95 3 285 9 90.58
∑𝑦 = 532 ∑𝑥 = 0 ∑𝑥𝑦 =136 ∑𝑥 2 = 28

𝑦 ′ = 𝑎 + 𝑏𝑥 = 76 + 4.86𝑥
Where
∑ 𝑦 ∑ 𝑥 2 −∑ 𝑥 ∑ 𝑥𝑦 532∗28−0∗136
𝑎= = = 76
𝑛 ∑ 𝑥 2 −(∑ 𝑥)2 7∗28−(0)2
 𝑛 ∑ 𝑥𝑦 − ∑ 𝑥 ∑ 𝑦 7 ∗ 136 − 0 ∗ 532
𝑏= = = 4.86
𝑛 ∑ 𝑥 2 − (∑ 𝑥 )2 7 ∗ 28 − (0)2