Time Series Analysis and
Forecasting
Course Instructor: Dr. Biswajit Patra
Wednesday, September 3, 2025
Data and its Types
• Time-Series Data:
Data that have been collected over a period of time on one or more
variables.
• Cross-Sectional Data:
Data on one or more variables collected at a single point in time.
• Panel Data:
Data have the dimensions of both time series and cross-sections.
Data and its Types
• Time-Series Data:
Share Price Movement of TCS for last one year
• Cross-Sectional Data:
Performance of NIFTY indexed shares last day.
• Panel Data:
Performance of USD/INR JPY/USD EUR/USD GBP/USD for last one year
[Link]
Problem Statement
• Relationship between company size and the return to
investing in its shares.
• How the value of a company’s stock price has varied when
it announced the value of its dividend payment ?
• The effect on a country’s exchange rate of an increase in its
trade deficit
• Country’s GDP level and the probability that the
government will default on its sovereign debt
• Performance of different Public Sector banks, private banks
since last decade.
Time Series
• It is a sequence of observations in
time order.
Wednesday, September 3, 2025
Theory Behind Time series
Wednesday, September 3, 2025
What it does?
• It builds a model which explains the past patterns and uses it to forecast
the future patterns.
• =NORMINV(RAND(),12,20)
• It is been told in time series we drive looking at the rear view mirror.
• If it so, then why we use time series then……..
Different Patterns of Time Series
• Horizontal or Constant Pattern
Horizontal or constant pattern: these are also known as stable or constant
process. In this case, the variable does not show an increasing or decreasing
pattern but fluctuates around mean or average.
• Trend:
A trend in the time series is identified by gradual shifts or movements to
relatively higher or lower values over a period of time.
• Seasonal:
Same repeating pattern of highs and lows over successive periods of time
within a year but may occur within a day, week, month, quarter, year, or
some other interval not greater than a year.
Trend and Seasonal: Mix of both.
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• Cyclical:
• Cyclical pattern is identified by a time series shows an alternating
sequence of points plotting above and below a trend line.
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Different Patterns of Time Series
• White noise: no pattern
• Time series pattern is one in which each observation is independent
of all other observations in the time series, sometimes called white
noise.
• =NORMINV(RAND(),12,20) 80
60
40
20
0
1 22 43 64 85 106127148169190211232253274295316337358379
-20
-40
-60
What’s this “rAnDoM wAlk”?
• Random walk hypothesis states that past observations are of no value
in forecasting future. As an as approximate implication of
unpredictability of returns..
• The step pattern of a Drunkard.
• When the random walk is tested this is similar to testing
whether the market weak form efficient or not.
• The exchange rate series{ } is a random walk if it satisfies
• Where is a real number denoting the starting value of the process and
{} is a white noise series.
Wednesday, September 3, 2025
Some Macro Economic Equations
Structural Equations and Reduced-Forms Equations
• Structural equation: Expresses the endogenous variable as being
dependent on the current realization of another endogenous variable.
• Reduced-form equation: Expressing the value of a variable in terms of
its own lags, lags of other endogenous variables, current and past values
of exogenous variables, and disturbance terms.
Wednesday, September 3, 2025
DIFFERENCE EQUATIONS
The first difference of y is defined as the value of the function when evaluated at
t = + h minus the value of the function evaluated at :
First Difference
Second Difference
Essence of Studying Time Series
Analysis
1. Validating empirically the economic theories
2. Observing a-theoretical empirical relationship
3. Developing new methods in time series
Wednesday, September 3, 2025
Grading Policy
Wednesday, September 3, 2025
Thank You
Wednesday, September 3, 2025