Syllabus for TIME SERIES ANALYSIS

Lecturer: Gregory G. Kantorovich

Class teacher: Boris B. Demeshev

Course description:

Time Series Analysis (Master level) is an elective course designed for the first year Master
students of Finantial Analytic Program. This is an intermediate course of Time Series Theory
for the students specializing in the field of Finance and Banking. Its prerequisites are Statistics,
Econometrics, the knowledge of economic theory and computer-based information systems is
necessary as well. The course is taught in English.
The stress in the course is made on the sense of facts and methods of time series analysis.
Conclusions and proofs are given for some basic formulas and models; this enables the students
to understand the principles of economic theory. The main stress is made on the economic
interpretation and applications of considered economic models.

Learning objectives:

The students should get acquainted with the main concepts of Time Series theory and
methods of analysis. They should know how to use them in examining financial processes and
should understand methods, ideas, results and conclusions that can be met in the majority of
books and articles on economics and finance . In this course, students should master traditional
methods of Time Series analysis, intended mainly for working with time series data. Students
should understand the differences between cross-sections and time series, and those specific
economic problems, which occur while working with data of these types.

Learning outcomes
Students should become skillful in analysis and modelling of stochastic processes of
ARMA (p, d, q) models, get acquainted with co-integration and error correction
models, autoregressive models with distributed lags, understand their application in
economics. Considered methods and models should be mastered by practice using real
economic data and modern economic software Econometric views and R.

The methods:

The following methods and forms of study are used in the course:
- Lectures;
- practices in computer class;
- self-study in computer class (doing home assignments using R and Econometric views, work
with financial data, appliances in Internet);
- self-study with literature.

In total the course includes 28 hours of the lectures and 28 hours of practices and classes.

It is assumed that lectures and seminars are attended. The main form of control is the
examination at the end of the course. Before the exam students have to demonstrate econometric
research based on data gathered under the supervision of the teacher.
To get a good mark in the exam students have to show absolute knowledge of the bases of
the course, hand in all home assignments and well written examination research.

1
Main reading:

1. Enders W. Applied Econometric Time Series. John Wiley & Sons, Inc., 1995
2. Mills, T.C. The Econometric Modelling of Financial Time Series. Cambridge University
Press, 1999
3. Andrew C. Harvey. Time Series Models. Harvester wheatsheaf, 1993.
4. Andrew . Harvey. The Econometric Analysis of Time Series. Philip Allan, 1990.
5. .. .
, 2002, 2003

Supplementary reading:

6. Econometric Views 4.0 User's Guide. Quantitative Micro Software, LLC.

7. Banerjee, A., J.J. Dolado, and D.V. Hendry. Co-Integration, Error Correction, and
Econometric Analysis of Non-Stationary Data. Oxford University Press, 1993
8. Maddala, G.S. And Kim In-Moo. Unit Roots, Cointegration, and Structural Change.
Cambridge University Press, 1998
9. P. J. Brockwell, R. A. Davis, Introduction to Time Series and Forecasting. Springer, 1996
10. J. Johnston, J. DiNardo. Econometric Methods. McGraw-Hill, 1997.
11. W. Charemza, D. Deadman. New Directions in Econometric Practice. Edward Elgar
Publishing Limited, 1997.
12. R. I. D. Harris. Using Cointegration Analysis in Econometric Modeling. Prentice Hall, 1995

Grade determination:

This course includes 1 control work. The main form of control is the written exam.
Necessary conditions for a good exam grade are well-done control work (40% of the final
grade). The exam work gives 60% of the final grade.

Course outline:

1. Stochastic process and its main characteristics

Stochastic process. Time series as a discrete stochastic process. Stationarity. Main
characteristics of stochastic processes (means, autocovariation and autocorrelation functions).
Stationary stochastic processes. Stationarity as the main characteristic of stochastic component
of time series. Wold decomposition. Lag operator.

2. Autoregressive-moving average models ARMA (p,q)

Moving average models (q). Condition of invertability. Autoregressive models R().
Yull-Worker equations. Stationarity conditions. Autoregressive-moving average models ARMA
(p,q).

3. Coefficient estimation in ARMA (p,q) processes. Box-Jenkins approach

Coefficients estimation in autoregressive models. Coefficient estimation in ARMA (p)
processes. Quality of adjustment of time series models. AIC information criterion. BIC
information criterion. Portmonto-statistics. Box-Jenkins methodology to identification of
stationary time series models.

4. Forecasting in the framework of Box-Jenkins model

Forecasting, trend and seasonality in Box-Jenkins model.

2
5. Non-stationary time series
Non-stationary time series. Time series with non-stationary variance. Non-stationary mean.
ARIMA (p,d,q) models. The use of Box-Jenkins methodology to determination of order of
integration.

6. The unit root problem

The unit root problem. Spurious trends and regressions. Unit root tests (Dickey-Fuller).
ADF test and the choice of the number of lags. Other unit root tests.

7. Unit root and structure changes

Non-stationary time series, TSP or DSP: methodology of research. Segmented trends and
structure changes.

8. Regressive dynamic models

Regressive dynamic models. Autoregressive models with distributed lags (ADL).

9. Vector autoregression model and co-integration

Time series co-integration. Co-integration regression. Testing of co-integration. Vector
autoregression and co-integration. Co-integration and error correction model.

10. Causality in time series

Granger causality. Hypothesis testing on rational expectations. Hypothesis testing on
market efficiency.

Teaching hours for topics and activities:

Contact hours Hours

TOTAL i. e. without
No Topics titles
(hours)
Lectures Classes assistence

Stochastic process and its main

1. 10 2 8
characteristics
Autoregressive-moving average models
2. 12 2 2 8
ARMA (p,q)
Estimation of coefficients of ARMA (p,q)
3. 10 2 8
processes. Box-Jenkins approach
4. Forecasting in Box-Jenkins model 10 2 8
Control work 2 2
5. Non-stationary time series 10 2 8
6. Unit root problems 10 2 8
7. Unit root and structure changes 12 2 2 8
8. Regressive dynamic models 12 2 10
Vector autoregressive model and co-
9. 14 2 2 10
integration
10. Causality in time series 10 2 8
Final exam 2 2
Total: 114 12 16 86