Professional Documents
Culture Documents
Time Series
Models
Quantitative Forecasting
Methods
Quantitative
Forecasting
Trend
Time Series Components
Trend Cyclical
Time Series Components
Trend Cyclical
Seasonal
Time Series Components
Trend Cyclical
Seasonal Irregular
Trend Component
Persistent, overall upward or downward
pattern
Due to population, technology etc.
Several years duration
Response
Time
Cyclical Component
Repeating up & down movements
Due to interactions of factors influencing
economy
Usually 2-10 years duration
Cycle
Response
Time
Seasonal Component
Regular pattern of up & down fluctuations
Due to weather, customs etc.
Occurs within one year
Summer
Response
1984-1994 T/Maker Co.
Mo., Qtr.
Seasonal Component
Upward or Downward Swings
Regular Patterns
Observed Within One Year
Sales Winter
events
Union strike
War
Short duration &
nonrepeating
Random or Irregular
Component
Erratic, Nonsystematic, Random,
Residual Fluctuations
Due to Random Variations of
Nature
Accidents
Trend?
Time Series Forecasting
Time
Series
Smoothing No
Methods Trend?
Time Series Forecasting
Time
Series
Moving Exponential
Average Smoothing
Time Series Forecasting
Time
Time
Series
Series
Smoothing No
No Yes
Yes Trend
Smoothing Trend? Trend
Methods
Methods Trend? Models
Models
Moving
Moving Exponential
Exponential
Average
Average Smoothing
Smoothing
Auto-
Auto-
Linear
Linear Quadratic
Quadratic Exponential
Exponential Regressive
Regressive
Time Series Analysis
Plot time series data
No trend? Yes
Smoothing Forecasting Decomposition
moving averages linear cyclical analysis
exponential smoothing quadratic
exponential
autoregressive
Plotting Time Series Data
Intra-Campus Bus Passengers
(X 1000)
12
10
Number of Passengers
6
Month/Year
Smoothing No
No Yes
Yes Trend
Smoothing Trend? Trend
Methods
Methods Trend? Models
Models
Moving
Moving Exponential
Exponential
Average
Average Smoothing
Smoothing
Auto-
Auto-
Linear
Linear Quadratic
Quadratic Exponential
Exponential Regressive
Regressive
Moving Average Method
Series of arithmetic means
Used only for smoothing
Provides overall impression of data over time
Moving Average Method
Series of arithmetic means
Used only for smoothing
Provides overall impression of data over time
Smoothing No
No Yes
Yes Trend
Smoothing Trend? Trend
Methods
Methods Trend? Models
Models
Moving
Moving Exponential
Exponential
Average
Average Smoothing
Smoothing
Auto-
Auto-
Linear
Linear Quadratic
Quadratic Exponential
Exponential Regressive
Regressive
Exponential Smoothing
Method
Form of weighted moving average
Weights decline exponentially
Most recent data weighted most
Requires smoothing constant (W)
Ranges from 0 to 1
Subjectively chosen
Involves little record keeping of past data
Exponential Smoothing
[An Example]
Youre organizing a Kwanza meeting. You
want to forecast attendance for 1998 using
exponential smoothing
( = .20). Past attendance (00) is:
1995 4
1996 6
1997 5
1998 3
1999 7 1995 Corel Corp.
Exponential Smoothing
Ei = WYi + (1 - W)Ei-1
Smoothed Value, Eii Forecast
Time Yii ^
(W = .2) Yii ++ 11
1995 4 4.0 NA
1996 6 (.2)(6) + (1-.2)(4.0) = 4.4 4.0
1997 5 (.2)(5) + (1-.2)(4.4) = 4.5 4.4
1998 3 (.2)(3) + (1-.2)(4.5) = 4.2 4.5
1999 7 (.2)(7) + (1-.2)(4.2) = 4.8 4.2
2000 NA NA 4.8
Exponential Smoothing
[Graph]
Attendance
Actual
8
6
4
2
0
93 96 97 98 99
Year
Forecast Effect of
Smoothing Coefficient (W)
^
Yi+1 = WYi + W(1-W)Yi-1 + W(1-W)2Yi-2 +...
Weight
2 Periods 3 Periods
W is... Prior Period Ago Ago
22
W W(1-W) W(1-W)
0.10 10% 9% 8.1%
0.90 90% 9% 0.9%
Linear Time-Series
Forecasting Model
Time Series Forecasting
Time
Time
Series
Series
Smoothing No
No Yes
Yes Trend
Smoothing Trend? Trend
Methods
Methods Trend? Models
Models
Moving
Moving Exponential
Exponential
Average
Average Smoothing
Smoothing
Auto-
Auto-
Linear
Linear Quadratic
Quadratic Exponential
Exponential Regressive
Regressive
Linear Time-Series
Forecasting Model
Used for forecasting trend
Relationship between response variable Y &
time X is a linear function
Coded X values used often
Year X: 1995 1996 1997 1998 1999
Coded year: 0 1 2 3 4
Sales Y: 78.7 63.5 89.7 93.2 92.1
Linear Time-Series Model
Yi b0 b1X 1i
Y b1 > 0
b1 < 0
Time,
Time,XX 11
Linear Time-Series Model
[An Example]
Youre a marketing analyst for Hasbro Toys. Using
coded years, you find Yi = .6 + .7X^i.
1995 1
1996 1
1997 2
1998 2
1999 4
Forecast 2000 sales.
Linear Time-Series [Example]
Year Coded Year Sales (Units)
1995 0 1
1996 1 1
1997 2 2
1998 3 2
1999 4 4
2000 5 ?
96 2 2 6
97 3 2 5
98 4 7 4 Projected to
99 5 6 3 year 2000
Excel Output 2
Coefficients 1
Intercept 2.14285714 0
X Variable 1 0.74285714 1993 1994 1995 1996 1997 1998 1999 2000
Time Series Plot
Surgery Data
(Time Sequence Plot)
(X 1000)
20
19
18
Number of Surgeries
17
16
Month/Year
193
191
189
Number of Surgeries
187
185
183
Month/Year
100.5
100.3
Monthly Index
100.1
99.9
99.7
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month
19.5
19.2
18.9
Number of Surgeries
18.6
18.3
18
Month/Year
Smoothing No
No Yes
Yes Trend
Smoothing Trend? Trend
Methods
Methods Trend? Models
Models
Moving
Moving Exponential
Exponential
Average
Average Smoothing
Smoothing
Auto-
Auto-
Linear
Linear Quadratic
Quadratic Exponential
Exponential Regressive
Regressive
Quadratic Time-Series
Forecasting Model
Used for forecasting trend
Relationship between response variable Y &
time X is a quadratic function
Coded years used
Quadratic Time-Series
Forecasting Model
Used for forecasting trend
Relationship between response variable Y &
time X is a quadratic function
Coded years used
Quadratic model
2
Yi b0 b1X 1i b11X 1i
Quadratic Time-Series
Model Relationships
Y b11 > 0 Y b11 > 0
Year, X 1
Year, X 1
Year, X 1
Year, X 1
Quadratic Trend Model
Year Coded Sales
Yi b0 b1 X i b2 X i2
94 0 2
Coefficients
95 1 5
Intercept 2.85714286
96 2 2 X Variable 1 -0.3285714
97 3 2 X Variable 2 0.21428571
Excel Output
98 4 7
99 5 6
Yi 2.857 0.33 X i .214 X i2
Exponential Time-Series
Model
Time Series Forecasting
Time
Time
Series
Series
Smoothing No
No Yes
Yes Trend
Smoothing Trend? Trend
Methods
Methods Trend? Models
Models
Moving
Moving Exponential
Exponential
Average
Average Smoothing
Smoothing
Auto-
Auto-
Linear
Linear Quadratic
Quadratic Exponential
Exponential Regressive
Regressive
Exponential Time-Series
Forecasting Model
Used for forecasting trend
Relationship is an exponential function
Series increases (decreases) at increasing
(decreasing) rate
Exponential Time-Series
Forecasting Model
Used for forecasting trend
Relationship is an exponential function
Series increases (decreases) at increasing
(decreasing) rate
Exponential Time-Series
Model Relationships
Y b1 > 1
0 < b1 < 1
Year, X 1
Exponential Weight
[Example Graph]
Sales
8
Data
6
2 Smoothed
0
94 95 96 97 98 99 Year
Exponential Trend Model
Yi b0b1
Xi
or log Yi log b0 X 1 log b1
Year Coded Sales
Coefficients
94 0 2 Intercept 0.33583795
95 1 5 X Variable 10.08068544
96 2 2 Excel Output of Values in logs
97 3 2
antilog(.33583795) = 2.17
antilog(.08068544) = 1.2
98 4 7
99 5 6
Yi ( 2.17 )( 1.2 ) Xi
Autoregressive Modeling
Time Series Forecasting
Time
Time
Series
Series
Smoothing No
No Yes
Yes Trend
Smoothing Trend? Trend
Methods
Methods Trend? Models
Models
Moving
Moving Exponential
Exponential
Average
Average Smoothing
Smoothing
Auto-
Auto-
Linear
Linear Quadratic
Quadratic Exponential
Exponential Regressive
Regressive
Autoregressive Modeling
Used for forecasting trend
Like regression model
Independent variables are lagged response
variables Yi-1, Yi-2, Yi-3 etc.
Assumes data are correlated with past data
values
1st Order: Correlated with prior period
Estimate with ordinary least squares
Time Series Data Plot
Intra-Campus Bus Passengers
(X 1000)
12
10
Number of Passengers
6
Month/Year
0.5
2 0
-0.5
-1
0 5 10 15 20 25
Lag
Autoregressive Model
[An Example]
The Office Concept Corp. has acquired a number of office
units (in thousands of square feet) over the last 8 years.
Develop the 2nd order Autoregressive models.
Year Units
92 4
93 3
94 2
95 3
96 2
97 2
98 4
99 6
Autoregressive Model
[Example Solution]
Develop the 2nd order Year Yi Yi-1 Yi-2
table 92 4 --- ---
Use Excel to run a 93 3 4 ---
regression model 94 2 3 4
95 3 2 3
Excel Output 96 2 3 2
Coefficients 97 2 2 3
Intercept 3.5 98 4 2 2
X Variable 1 0.8125 99 6 4 2
X Variable 2 -0.9375
Yi 3.5 .8125Yi 1 .9375Yi 2
Evaluating Forecasts
Quantitative
Forecasting Steps
Select several forecasting methods
Forecast the past
Evaluate forecasts
Select best method
Forecast the future
Monitor continuously forecast accuracy
Forecasting Guidelines
No pattern or direction in forecast error
ei = (Actual Yi - Forecast Yi)
Seen in plots of errors over time
Smallest forecast error
Measured by mean absolute deviation
Simplest model
Called principle of parsimony
Pattern of Forecast Error
Trend Not Fully
Accounted for Desired Pattern
Error
Error Error
Error
00 00
Time
Time(Years)
(Years) Time
Time(Years)
(Years)
Residual Analysis
e e
0 0
T T
Random errors Cyclical effects not accounted for
e e
0 0
T T
Trend not accounted for Seasonal effects not accounted for
Principal of Parsimony
Suppose two or more models provide good
fit for data
Select the Simplest Model
Simplest model types:
least-squares linear
least-square quadratic
1st order autoregressive
More complex types:
2nd and 3rd order autoregressive
least-squares exponential
Summary
Described what forecasting is
Explained time series & its components
Smoothed a data series
Moving average
Exponential smoothing
Forecasted using trend models
You and StatGraphics
Specification
[Know assumptions
underlying various
models.]
Estimation
[Know mechanics of
StatGraphics Plus Win].
Diagnostic checking
Questions?
Source of Elaborate Slides