BBA 3rd Sem.

301 Quantitative Techniques

Unit 2nd
Analysis of Time Series
Lecture No. 5-7

Intekhab Khan

Assistant Professor
School of Management
 CONTENT

• Meaning & Uses of Time Series Analysis,

• Components of Time Series,
• Measurement of Trend, &
• Measurement of Seasonal Variation.
 Meaning of Time Series Analysis
• A series of observations, on a variable, recorded
after successive intervals of time is called a time
series.
• The successive intervals are usually equal time
intervals, e.g., it can be 10 years, a year, a quarter, a
month, a week, a day, and an hour, etc.
• The data on the population of India is a time series
data where time interval between two successive
figures is 10 years. Similarly figures of national
income, agricultural and industrial production, etc.,
are available on yearly basis.
 Uses of Time Series Analysis
• Time series in Financial and Business Domain: Most financial, investment
and business decisions are taken into consideration on the basis of future
changes and demands forecasts in the financial domain.
• Time series in Business Development: Time series forecasting helps
businesses to make informed business decisions, as the process analyzes past
data patterns it can be useful in forecasting future possibilities and events
many ways like; Reliability, Growth, Trend estimation, Seasonal patterns.
• Time series in Medical Domain: Medicine has evolved as a data-driven
field and continues to contribute in time series analysis to human knowledge
with enormous developments.
• Time series in Forecasting Weather: Anciently, the Greek philosopher
Aristotle researched weather phenomena with the idea to identify causes and
effects in weather changes.
• Time Series in Astronomy: One of the contemporary and modern
applications where time series plays a significant role are different areas of
astronomy and astrophysics
 Components of Time Series
• Trend- It is the broad long-term tendency of either upward or
downward movement in the average (or mean) value of the forecast
variable y over time. The rate of trend growth usually varies over time.
• Cycles- An upward and downward oscillation of uncertain duration
and magnitude about the trend line due to seasonal effect with fairly
regular period or long period with irregular swings is called a cycle. A
business cycle may vary in length, usually greater than one year but
less than 5 to 7 years. The movement is through four phases: from
peak (prosperity) to contradiction (recession) to trough (depression)
to expansion (recovery or growth).
• Seasonal- It is a special case of a cycle component of time series in
which the magnitude and duration of the cycle do not vary but happen
at a regular interval each year. For example, average sales for a retail
store may increase greatly during festival seasons.
• Irregular- An irregular or erratic (or residual) movements in a time
series is caused by short term unanticipated and non-recurring factors.
These follow no specific pattern.
 Measurement of Trend
By using moving average method:
This method uses the concept of ironing out the fluctuations of the data by taking the
means. It measures the trend by eliminating the changes or the variations by means of
a moving average. The simplest of the mean used for the measurement of a trend is
the arithmetic means (averages).
Moving Average
• The moving average of a period (extent) m is a series of successive averages
of m terms at a time. The data set used for calculating the average starts with first,
second, third and etc. at a time and m data taken at a time.
• In other words, the first average is the mean of the first m terms. The second
average is the mean of the m terms starting from the second data up to (m +
1)th term. Similarly, the third average is the mean of the m terms from the third to
(m + 2)th term and so on.
• If the extent or the period, m is odd i.e., m is of the form (2k + 1), the moving
average is placed against the mid-value of the time interval it covers, i.e., t = k + 1.
On the other hand, if m is even i.e., m = 2k, it is placed between the two middle
values of the time interval it covers, i.e., t = k and t = k + 1.
• When the period of the moving average is even, then we need to synchronize the
moving average with the original time period. It is done by centering the moving
averages i.e., by taking the average of the two successive moving averages.
Measurement of Trend
 Measurement of Seasonal Variation by using simple average method

Seasonal Variations can be measured by the

method of simple average. The data
should be available in season wise likely
weeks, months, quarters.
Method of Simple Averages:
This is the simplest and easiest method for
studying Seasonal Variations. The
procedure of simple average method is
outlined below.
Procedure:
(i) Arrange the data by months, quarters or
years according to the data given.
(ii) Find the sum of the each months,
quarters or year.
(iii) Find the average of each months,
quarters or year.
(iv) Find the average of averages, and it is
called Grand Average (G)
(v) Compute Seasonal Index for every season
(i.e.) months, quarters or year is given
by:
 Numerical Problems: Measurement of Trend

By using moving average By using least square method:

method:
Numerical Problems: Measurement of Seasonal Variation by
using simple average method
By using simple average Miscellaneous Problems
method: