Time Series Analysis

Prepared by: Prof. Ekta Bajaj

Definitions
A set of data depending on the time is called time series.- Kenny & Keeping A time series consists of data arranged chronologically.- Croxton & Cowden A time series may be defined as a collection of readings belonging to different time period, of some economic variable or composite of variables such as production of steel, per capita income, gross national product, price of tobacco or index of industrial production.- Ya Lun Chou

Utility of time Series Analysis

It helps in the analysis of past behavior of a variable. It helps in forecasting. It helps in evaluation of current achievement. It helps in making comparative studies.

Components of a Time Series

Secular Trend/ Long term movements (T) Seasonal variations (S) Cyclical variations (C) Irregular variations (I)

Objectives of measuring trend

Knowledge of past behavior Estimation Comparison

Seasonal variation
Objectives of measuring Seasonal Variations: To analyze the past seasonal variations. To predict the value of seasonal variation. To eliminate the effect of seasonal variations from the data.

Cyclical variation
Objectives of measuring Cyclical Variations: To analyze the behavior of cyclical variation in the past. To predict the effect of cyclical variations so as to provide guidelines for future business policies.

Irregular or Random Variations

Mathematical models for analyzing Time Series

Additive model Y= T + S + C + I Multiplicative model Y= T * S * C * I

Measurement of Trend
Freehand or Graphic method Method of Semi- averages Method of Moving Averages Method of Least Squares

Method of Moving Average

Q1) Calculate 3 yearly & 5 yearly moving average of the data given below to obtain trend values:

Year Production (000 tones)

1981 1982 1983 26 27 28

1984 1985 30 29

1986 27

1987 30

1988 31

1989 32

1990 31

Ans:
Year 3 year 1981 ---1982 27 1983 28.33 1984 29 1985 28.67 1986 1987 1988 31 1989 31.33 1990 -----

28.67 29.33

Q2) Assuming a 4-yearly cycle, find the trend values for the following data
Year Sales 1979 74 1980 100 1981 97 1982 87 1983 90 1984 115 1985 126 1986 108 1987 100 1988 125 1989 118 1990 113 1991 122 1992 126

Ans :
Year 4 1979 ------1980 ---1981 91.5 1982 95.38 1983 100.88 1984 107.13 1985 111 1986 113.5 1987 117.75 1988 113.38 1989 116.75 1990 119.63 1991 --1992 ---

Method of Least Squares

Q3) The production (000 maunds) of a sugar factory is given below:
Year 1971 1972 1973 1974 1975 1976 1977

Production

40

45

46

42

47

50

46

Fit a straight line trend by the Least Squares Method & tabulate the trend.

Ans: Y= 1.036X + 45.143

Trend values 42.035 43.071 44.107 45.143 46.179 47.215 48.210

Q4) The following are the annual profits (000) in a certain business.
Year
Profit (000)

1971
60

1972
72

1973
75

1974
65

1975
80

1976
85

1977
95

By the method of least squares fit a straight line. Using that estimate profit for 1981.

Ans: Y= 4.857X + 76, 109.99

Q5) Calculate the trend values by the method of least squares from the data given below:
Year
Sales (000 Rs.)

1980
10

1981
13

1982
15

1983
20

Ans: Y=3.2X+ 14.5, Trend values: 9.7, 12.9, 16.1, 19.3

Measurement of Seasonal Variations

Method of Simple averages Ratio to Trend method Ratio to Moving Average method Link Relative method

Method of Simple Average

Q6) Calculate the seasonal index for the following data by using average method:
Year 1974 1975 1st Quarter 72 76 2nd Quarter 68 70 3rd Quarter 80 82 4th Quarter 70 74

1976
1977 1978

74
76 78

66
74 74

84
84 86

80
78 82

Ans: Q1= 98.43, Q2=92.15,

Q7) Calculate the seasonal index for the following data by using average method:
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

1977
1978 1979 1980

3.7
3.7 4.0 3.3

4.1
3.9 4.1 4.4

3.3
3.6 3.3 4.0

3.5
3.6 3.1 4.0

Ans: Q1= 98.7, Q2= 110.8, Q3= 95.3, Q4= 95.3

Ratio to Moving Average Method

Q8) Calculate the seasonal indices by the ratio to the moving average method from the following data:
Year 1 2 1st Quarter 68 65 2nd Quarter 62 58 3rd Quarter 61 56 4th Quarter 63 61

3
4 5

68
70 60

63
59 55

63
56 51

67
62 58

Ans: Q1= 107.02, Q2= 96.43, Q3= 94.43, Q4= 102.12

Q9) Given the following quarterly sale figures, (Rs.000)for the year 1986- 1989, find the specific seasonal indices by the method of moving averages.

Year 1986 1987 1988 1989

1st Quarter 34 37 39 42

2nd Quarter 33 35 37 41

3rd Quarter 34 37 38 42

4th Quarter 37 39 40 44