What is a Time Series?

Set of evenly spaced numerical data

Obtained by observing response variable at

regular time periods

Forecast based only on past values

Assumes that factors influencing past,

present, & future will continue

Example
Year: 1995 1996 1997 1998 1999 Sales: 78.7 63.5 89.7 93.2 92.1

Time Series vs. Cross Sectional Data

Contrary to restrictions placed on cross-sectional data, the major purpose of forecasting with time series is to extrapolate beyond the range of the explanatory variables.

Time Series Components

Time Series Components

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

Mo., Qtr., Yr.

1984-1994 T/Maker Co.

Trend Component

Overall Upward or Downward Movement Data Taken Over a Period of Years

Sales

Time

Cyclical Component
Repeating up & down movements Due to interactions of factors influencing economy Usually 2-10 years duration
Cycle Response

Mo., Qtr., Yr.

Cyclical Component
Upward or Downward Swings May Vary in Length Usually Lasts 2 - 10 Years
Sales

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

Time (Monthly or Quarterly)

Irregular Component
Erratic, unsystematic, residual fluctuations Due to random variation or unforeseen events

Union strike
War

1984-1994 T/Maker Co.

Short duration & nonrepeating

Random or Irregular Component

Erratic, Nonsystematic, Random,

Residual Fluctuations

Due to Random Variations of

Nature Accidents

Short Duration and Non-repeating

Time Series Forecasting

Time Series Forecasting

Time Series

Time Series Forecasting

Time Series

Trend?

Time Series Forecasting

Time Series

Smoothing Methods

No

Trend?

Time Series Forecasting

Time Series

Smoothing Methods

No

Yes

Trend?

Trend Models

Time Series Forecasting

Time Series

Smoothing Methods
Moving Average

No

Yes

Trend?

Trend Models

Exponential Smoothing

Time Series Forecasting

Time Series Smoothing Methods Moving Average No Trend? Yes Trend Models

Exponential Smoothing AutoRegressive

Linear

Quadratic

Exponential

Time Series Analysis

Plotting Time Series Data

Intra-Campus Bus Passengers
(X 1000) 12 10 8

Number of Passengers

0 09/83 07/86 05/89 03/92 01/95

Month/Year Data collected by Coop Student (10/6/95)

Time Series Forecasting

Time Series Smoothing Methods Moving Average No Trend? Yes Trend Models

Exponential Smoothing AutoRegressive

Linear

Quadratic

Exponential

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

Used for elementary forecasting

Time Series Forecasting

Time Series Smoothing Methods Moving Average No Trend? Yes Trend Models

Exponential Smoothing AutoRegressive

Linear

Quadratic

Exponential

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

Time Series Plot

[Revised]
Revised Surgery Data
(X 100) 193

(Time Sequence Plot)

191

189

Number of Surgeries
187

185

183 01/93 01/94 01/95 01/96 01/97

Month/Year Source: General Hospital, Metropolis

Seasonality Plot
Revised Surgery Data
(Seasonal Decomposition)
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

Source: General Hospital, Metropolis

Trend Analysis
Revised Surgery Data
(Trend Analysis)
(X 1000) 19.5 19.2

18.9

Number of Surgeries
18.6

18.3

18
12/92 10/93 8/94 6/95 9/96 2/97 12/97

Month/Year Source: General Hospital, Metropolis

Questions?

ANOVA