Examples
Stock price
Exchange rate, interest rate, inflation rate, national GDP
Retail sales
IMPORTANCE OF TIME SERIES ANALYSIS
A highly favored business forecasting tool.
Foundation for comprehending historical behavior.
Capable of projecting future operations and activities.
Allows for comparison.
Assesses recent successes and performance rating.
CAUSES OF VARIATIONS IN TIME SERIES DATA
Seasons
Holidays, social conventions, etc.;
The four stages of business: prosperity, decline, depression, and recovery
Events such as war, political upheaval
Natural disasters including earthquakes, epidemics, floods, and droughts.
Components of a time series:
Any time series can contain some or all of the following components:
1. Trend (T)
2. Cyclical (C)
3. Seasonal (S)
4. Irregular (I)
These components may be combined in different ways. It is usually assumed that they are multiplied or
added, i.e.,
y t = T ×C×S×I
y t = T +C+S+I
To correct for the trend in the first case one divides the first expression by the trend (T). In the second
case it is subtracted.
Trend component:
A time series' long-term pattern is called a trend. Depending on whether the time series shows a
rising or declining long term pattern, a trend can be either positive or negative. A time series is
said to be stationary in the mean if it does not exhibit a rising or decreasing trend.
Example: population change
Cyclical component:
A pattern is considered cyclical if it exhibits an up-and-down movement around a specific trend.
The kind of business or sector being studied determines how long a cycle lasts.
Example: BUSINESS CYCLE Consists of 4 phases: prosperity, decline, depressions, reco very
Seasonal component:
A time series is considered seasonal if it exhibits regular fluctuations in the same month or
months, or in the same quarter, every year.
Example: Demands for wollen clothes goes up in winter
Irregular component:
This element is erratic. Every time series is a random variable because it contains some
unexpected element. The goal of prediction is to "model" every element to the extent that the
random element is the only one that cannot be explained.