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TIME-SERIES ANALYSIS

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TIME-SERIES ANALYSIS

When data is collected, observed or recorded at successive intervals

of time, such data are referred to as Time Series i.e a Time Series

consists of statistical data in chronological order (in accordance with

time).

In time series analysis, we analyze the past behavior of a variable in

order to predict its future behavior.

When we observe numerical data at different points of time, the set

of observations are known as Time Series.

Time series analysis is one quantitative method which is used to

determine patterns in the data collected over regular intervals of time.

We project these patterns to arrive at an estimate to cope up with

uncertainty about the future.

Ex. Data of production, sales, imports etc. at different points of time.

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Reduced inventory costs.

Lower overall personnel costs.

Increased customer satisfaction.

Educated guess.

Expert opinions.

Past history of data values, known as a time

series.

COMPONENTS OF

TIME SERIES

1.

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Secular Trend

represented by the diagonal line drawn through the irregular

curve is called Secular Trend.

long period of time.

have nothing to do with trend.

time.

etc.

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2.

Seasonal Variations

SV are the fluctuations which completes the whole sequence of

change within the span of a year and tend to be repeated year after

year.

When a repetitive pattern is observed over some time horizon, the

series is said to have seasonal behavior.

Seasonal effects are usually associated with calendar or climatic

changes.

It includes any kind of variation which is of periodic natures &

whose repeating cycles are of relatively short durations.

SV can be because of:- Climate and weather conditions

- Increase in no of flu cases in winters

- Customs, traditions & habits.

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3. Cyclical Variations

These refers to the recurrent variations in time series that usually last

longer than a year and are regular.

Cyclical fluctuations are long term movements that represent

consistently recurring rises and declines in activity.

Most common Example: Business cycles. The time between hitting

peaks or falling to low points is at least one year or could be more.

4. Irregular Variations

Refers to variations in business activities which do not repeat in a

definite pattern.

These are variations caused by unpredictable factors like sudden

political instability, earthquakes, strikes, wars etc.

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The long-term tendency is usually one of three: growth,

decline, or constant.

Reasons for trends include:

-- greater supply of products and services

Technology -- impacts on efficiency, supply, and demand

Innovation -- impacts efficiency as well as supply and demand

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Upward and downward movements which repeat at the same

time each year.

Reasons for seasonal influences include:

demand because of the number of people involved

-- supplies of products and services may depend on the

weather

Events, Holidays -- often impact supply and demand

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Similar to seasonal variations except that there is likely not a

relationship to the time of the year.

Examples of cyclical influences include:

Inflation/deflation -- energy costs, wages and salaries, and

government spending

Stock market prices -- bull markets, bear markets

Consequences of unique events -- severe weather, law suits

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These are short-term effects, usually. We treat them as

independent from one time period to the next. The length of

the duration of these effects would then be shorter than one

time period, that is, one month for monthly data, one year for

annual data.

Ex. UTTRAKHAND Flood

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under consideration. Ex: Effectiveness of recruiting prog.

Organised by University

It helps to study the components which are of paramount

importance to a businessman in the planning of future

operations and in the formulation of executive and policy

decisions.

It helps to compare the actual current performance or

accomplishments with the expected ones and analyze the

causes of such variations.

It helps us to compare the changes in the values of different

phenomenon at different places.

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METHODS OF

MEASUREMENTS

1.

2.

3.

4.

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Semi-Average Method.

Method of Moving Averages, and

Least Squares Methods.

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BY METHOD OF LEAST SQUARES

Let Yc=a+bX represents equation of a straight line, where:-Yc

a

b

:

:

:

designates the Y-intercept.

represents the slope of the line, i.e., rate of change of

Y per unit change in X.

X

:

The X variable in time series analysis represents

time.

In order to determine the values of constants a and b, the following

two normal equations are to be solved:-

Y Na bX

XY aX bX 2

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Ques 1. Determine the trend line which best fits the following data and also find the

trend values for the given years.

Year

Sales

(in Rs. 000)

2000

35

2001

56

2002

79

2003

80

2004

40

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Sol.

Year

Sales

(in Rs. 000):

(Y)

Deviations from

middle year:

(X), i.e. 2002

2000

35

-2

2001

56

-1

2002

79

2003

80

2004

40

Y =

X= 0

X2

X2=

XY

Trend

values

Yc

XY=

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Ques 2. Given below are the figures of production (in lakh kg.) of a sugar factory.

Fit a straight line trend by the least square method and tabulate the trend. Also

estimate the trend for the year 2006.

Year

Production

1999

40

2000

45

2001

46

2002

42

2003

47

2004

50

2005

46

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Sol.

Year

Production

(Lac Kgs.):

(Y)

Deviations from

middle year:

(X), i.e. 2002

1999

40

-3

2000

45

-2

2001

46

-1

2002

42

2003

47

2004

50

2005

46

Y =

X= 0

X2

X2=

XY

Trend

values

Yc

XY=

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Ques 3. Fit a straight line trend by the method of least squares to the following

data. Assuming that the same rate of change continues what would be the

predicted earnings for the year 1980?

Year

Earnings

(Rs. cr.)

1981

38

1982

40

1983

65

1984

72

1985

69

1986

60

1987

87

1988

95

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Sol.

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Year

Earnings (Rs.

cr.):

(Y)

Deviations from

middle year:

i.e. 1984.5

1981

38

-3.5

1982

40

-2.5

1983

65

-1.5

1984

72

-0.5

1985

69

0.5

1986

60

1.5

1987

87

2.5

1988

95

3.5

N=8

Y =

X= 0

X2

XY

X2=

XY=

Trend values

Yc

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Qs 4. From the data given below fit a straight line trend by the method of least

squares and find the trend values. Calculate the estimated milk consumption for

the year 1997, assuming same trend continues.

Year

Milk

consumption

(million litres)

1988

102.3

1989

101.9

1990

105.8

1991

112.0

1992

114.8

1993

118.7

1994

124.5

1995

129.9

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Sol.

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Year

Milk

consumption

(mln. Lts) :

(Y)

Deviations

from middle

year:

i.e. 1991.5

1988

102.3

-3.5

1989

101.9

-2.5

1990

105.8

-1.5

1991

112.0

-0.5

1992

114.8

0.5

1993

118.7

1.5

1994

124.5

2.5

1995

129.9

3.5

N=8

Y =

X= 0

Multiplying

deviations by 2

(X)

X2

X2=

XY

XY=

Trend

values

Yc

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Qs 5. The following data show the experience of machine operators and their

performance ratings as given by the number of good parts turned out per 100

pieces.

Operator

experience

Performance

Rating

16

87

12

88

18

89

68

78

10

80

75

12

83

Develop a linear trend for this data and estimate the probable performance if an

operator has 10 years experience.

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Sol.

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Operator

experience

(X)

Performance

Rating

(Y)

16

87

12

88

18

89

68

78

10

80

75

12

83

X=

Y =

X2

X2=

XY

XY=

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