Scribd
Upload
21 views

2 Time Series Analysis and Forecasting

Uploaded by

namisha211
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
21 views

2 Time Series Analysis and Forecasting

Uploaded by

namisha211
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 8

TIME SERIES ANALYSIS AND

FORECASTING
INTRODUCTION TO TIME SERIES ANALYSIS
A time-series is a set of observations on a quantitative variable
collected over time.
Examples
 Dow Jones Industrial Averages
 Historical data on sales, inventory, customer counts, interest
rates, costs, etc
Businesses are often very interested in forecasting time series
variables.
Often, independent variables are not available to build a
regression model of a time series variable.
In time series analysis, we analyze the past behavior of a
variable in order to predict its future behavior.
COMPONENTS OF TSA
Time Frame (How far can we predict?)
 short-term (1 - 2 periods)
 medium-term (5 - 10 periods)
 long-term (12+ periods)
 No line of demarcation

Trend
 Gradual, long-term movement (up or down) of demand.
 Easiest to detect
COMPONENTS OF TSA (CONT.)
Cycle
 An up-and-down repetitive movement in demand.
 repeats itself over a long period of time

Seasonal Variation
 An up-and-down repetitive movement within a trend occurring periodically.
 Often weather related but could be daily or weekly occurrence

Random Variations
 Erratic movements that are not predictable because they do not follow a pattern
TIME SERIES PLOT
Actual Sales

$3,000

$2,500

$2,000
Sales (in $1,000s)

$1,500

$1,000

$500

$0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Time Period
COMPONENTS OF TSA (CONT.)
Difficult to forecast demand because...

– There are no causal variables


– The components (trend, seasonality,
cycles, and random variation) cannot
always be easily or accurately
identified
CATEGORIES OF TIME-SERIES MOVEMENTS
Categories of Time-Series Movements
 Long-term or trend movements (trend curve): general direction in which a time
series is moving over a long interval of time
 Cyclic movements or cycle variations: long term oscillations about a trend line
or curve
 e.g., business cycles, may or may not be periodic
 Seasonal movements or seasonal variations
 i.e, almost identical patterns that a time series appears to follow during
corresponding months of successive years.
 Irregular or random movements
Time series analysis: decomposition of a time series into these four basic
movements
 Additive Modal: TS = T + C + S + I
 Multiplicative Modal: TS = T  C  S  I

7
MEASURING ACCURACY
We need a way to compare different time series techniques for a given data set.
4 common techniques are the:
n 
Yi  Y
mean absolute deviation, MAD = i 1 n
i

100 n Yi  Ŷi
mean absolute percent error, MAPE = 
n i 1 Yi
the mean square error,
MSE = 
n

Yi  Y i  2

i 1 n
root mean square error
RMSE  MSE
• We will focus on MAPE as it is unit independent

You might also like