Time Series Analysis ARIMA Final RaychellSantosEmbile

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PRESENTED BY: RAYCHELL
What ARIMA stands for

A series which needs to be differenced to be made
stationary is an integrated (I) series
Lags of the stationarized series are called autoregressive (AR) terms
Lags of the forecast errors are called moving average

(MA) terms
ARIMA Model
Building Process
Table 2. Characteristics of a good forecasting

model
1. If fits the past data well.
Plots of actual versus fitted are good.
2 is high.
RSE is low relative to other models.
The MAPE is good.

2.The model has intuitive appeal.
3. It forecast the future and withheld (i.e., out-of-sample) data well.
4. It is parsimonious, simple but effective, not having too many
coefficients.
Table 2. Characteristics of a good forecasting

model (concluded)
5. The estimated coefficients and
and not redundant or unnecessary.
p
are statistically significant
6. The model is stationary and invertible.

7. No patterns left in the ACFs and PACFs.
8. The residuals are white noise, or they have no patterns
denoting model deficiencies.
9. The Schwarz Bayesian or Akaike information criteria are lower
than those of other models.
ACFs-PACFs Table
Process
ACFs
PACFs
ARIMA (0,0,0)
No significant lags
No significant lags
ARIMA (0,1,0)
Linear decline at lag 1, with many

lags significant
Single significant peak at lag 1
ARIMA (1,0,0)
t >0
Exponential decline, with first 2 or

more lags significant
Single significant peak at lag 1
ARIMA (1,0,0)
t < 0
Alternating exponential decline

starting with a negative ACF(1)
Single significant negative peak at

lag 1
ARIMA (0,0,1)
t >0
Single significant negative peak at

lag 1
Exponential decline of negative

values, with first 2 or 3 lags
significant
ARIMA (0,0,1)
t < 0
Single significant positive peak at

lag 1
Alternating exponential decline

starting with a positive
The Q-Statistic and White Noise Diagnosis

In extracting information form a time series, we use the patterns in the
ACFs to guide information of the ARIMA models.
Model has a high R
(i.e., low sum of squares), statistically significant

coefficients, nonredundant coefficients, and no patterns left in the
ACFs and PACFs and residual plots, we conclude that a good ARIMA
model has been identified.
2
However, while individual t-tests can be performed on specific lags of

ACFs using the standard error of the ACFs, the definition of no
pattern is subjective until it can be quantified.

The Q-statistic is use as objective diagnostic measure of white noise for a
time series, assessing whether there are patterns in a group of
autocorrelation.
2
ACF
(
i
)
The Q-statistic is,
Q n(n 2)
n i
k
i 1 to k
when the ACFs are from a white noise series this statistic is chi-square
distributed with k-p-q degrees of freedom, where p and q are the number of
AR and MA coefficients of the model, Thus, we see that Q is proportional to
the sum of the ACFs through lag k, where typically k is selected to be two
seasonal cycles or in general about 20 when two seasonal cycles is much
different than 20.

The Q-statistic is used in the following hypothesis test:
Ho: The residual ACFs are consistent with white noise ACFs.
If
table, where df=k-p-q and
, then infer that the
2
Q
0.05 different than those of
ACF patterns are not statistically significantly
white noise.
If Q 2 table, where df=k-p-q and 0.05
, then infer that the
ACF patterns are statistically significantly different than those of white
noise.
Autoregressive Process
ARIMA(1,0,0)
Autoregression is an extension of simple linear regression (it is a
simple linear relationship between and )
An ARIMA(1,0,0) model commonly called an AR(1) is written

as:
where
and
are coefficients chosen to minimize

1
the sum of squared errors.
ARIMA(1,0,0)
Example:
Time Series Plot of sales_dairy
Figure
206
204
202
sales_dairy
in the right illustrates the

daily sales of a dairy product
during a 100-day period. This
products is known to be
nonseasonal by the day of the
week and week of the year. The
plot ofis somewhat random.
However, there is some
wandering of about its mean of
199.02.
200
198
196
194
192
190
1
10
20
30
40
50
Index
60
70
80
90
100
ARIMA(1,0,0)
Example: The ACFs and PACFs

Autocorrelation Function for sales_dairy
Partial Autocorrelation Function for sales_dairy
(with 5% significance limits for the autocorrelations)
(with 5% significance limits for the partial autocorrelations)
0.80
1.0
0.72
0.8
0.64
Partial Autocorrelation
0.56
Autocorrelation
0.48
0.40
0.32
0.24
0.16
0.08
0.00
-0.08
-0.16
-0.24
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-0.32
-1.0
-0.40
10
12
14
Lag
16
18
20
22
24
10
12
14
Lag
16
18
20
22
24
The ACFs of the figure above (left) show an exponential decline

from about 0.75 at lag 1. Meanwhile, the PACFs (right) have a
significant spike at 1. Both the ACFs and the PACFs suggest an
autoregressive model, ARIMA (1,0,0).
ARIMA(1,0,0)
Example:
Time Series Plot of sales_dairy, FITS1
Versus Order
206
(response is sales_dairy)
Variable
sales_dairy
FITS1
204
5.0
202
2.5
Residual
Data
200
198
196
194
0.0
-2.5
192
-5.0
190
1
10
20
30
40
50
60
70
80
90
100
Index
Time Series Plot of Actual vs Fitted

values
10
20
30
40
50
60
70
80
90
Observation Order
Residual Plots (no pattern left)
100
ARIMA(1,0,0)
Example:
The ACFs and PACFs of
ACF of Residuals for sales_dairy
PACF of Residuals for sales_dairy
1.0
1.0
0.8
0.8
0.6
0.6
Autocorrelation
residuals
0.4
0.2
0.0
-0.2
-0.4
-0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-0.8
-1.0
-1.0
2
10
12
14
Lag
16
18
20
22
24
10
12
14
16
18
20
22
24
Lag
As shown, no low-order or seasonal ACFs and PACFs of the residuals are

statistically significant; thus, this seems to be a statistically defensible model.
ARIMA(1,0,0)
Example:
Final Estimates of Parameters

Type
AR
1
Constant
Mean
Coef
0.7539
49.0086
199.121
SE Coef
0.0668
0.1923
0.781
T
11.29
254.83
P
0.000
0.000
The final model is,
Modified Box-Pierce (Ljung-Box) Chi-Square

statistic
Lag
Chi-Square
DF
P-Value
12
12.4
10
0.257
24
26.5
22
0.231
36
36.9
34
0.335
Also, based on the result, the

coefficients are significant
with p-value less than 0.05.
48
53.9
46
0.197
49.0086 0.7539Y t 1 et
ARIMA(p,0,0)
A process considered AR (1) is the first order process, meaning

that the current value is based on the immediately preceding
value. An AR(2) process has the current value based on the
previous two values.
Integrated Process ARIMA (0,1,0)
Integrated processes are level-nonstationary series.

Trends and random walks are level-nonstationary
because their means (i.e., levels) are not constant or

not stationary).
A random walk model, which is equal to ARIMA(0,1,0)

is written as:
Integrated Process ARIMA(0,1,0)

Example:
Autocorrelation Function for daily_stock_prices

1
.0
0.8
Time Series Plot of daily_stock_prices
Autocorrelation
0.6
1
9
daily_stock_prices
1
8
1
7
1
6
0.4
0.2
0.0
-0.2
-0.4
-0.6
1
5
-0.8
1
4
-1
.0
1
3
1
0
1
2
1
4
1
6
1
8
20
22
24
Lag
1
2
1
1
1
0
1
0
20
30
40
50
60
70
80
90
Partial Autocorrelation Function for daily_stock_prices
1
00
Index
1
.0
0.8
The time series plot of the daily price for a stock

traded data on a major exchange ACFs and
PACFs. As shown in the plot in the figure of the
original series (figure above), this series drifts
and therefore has a nonstationary (i.e.,
nonconstant) mean. The linearly declining ACFs
and have at least 3 significant spikes and 1
significant spike in lag 1 in the PACFs is indicative
of a random walk series, thus differencing is
necessary.
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1
.0
2
1
0
1
2
1
4
Lag
1
6
1
8
20
22
24

Example:
Autocorrelation Function for first_diff

Time Series Plot of first_diff (Daily Stock Prices)

1
.0
0.8
1
.5
0.6
Autocorrelation
first_diff
1
.0
0.5
0.0
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-0.5
-1
.0
2
-1
.0
1
0
1
2
1
4
1
6
1
8
20
22
24
Lag
1
1
0
20
30
40
50
60
70
80
90
1
00
Index
Partial Autocorrelation Function for first_diff

1
.0
0.8
As shown the first differences have a mean

of zero and are distributed as white noise,
having no statistically significant ACFs and
PACFs. Thus, the modeling process yields
the random walk model.
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1
.0
2
1
0
1
2
1
4
Lag
1
6
1
8
20
22
24

Example:
The expert modeler in
IBM SPSS also

selected ARIMA(0,1,0)
as the best ARIMA
model with higher
hich is equal to 0.929
and not significant
Ljung-Box (Q) with pvalue=0.929 which
infers that ACF
patterns are not
statistically different
than those of white
noise.
Moving Average Process

ARIMA(0,1,1)
Example:
Figure in the right illustrates the
Time Series Plot of fad
weekly
20.0
17.5
15.0
fad
demand of fad products

which is known to be
nonseasonal. The plot ofhas a
nonstationary mean. The ACFs
and PACFs are also indicative of
a nonstationary series; they
remain very high and significant
for many lags. Because of the
level nonstationary, first
difference of are taken.
12.5
10.0
7.5
5.0
10
20
30
40
50
Index
60
70
80
90
100

ARIMA(0,1,1)
Example:
Autocorrelation Function for fad
Partial Autocorrelation Function for fad

1.0
0.8
0.8
1.0
Autocorrelation
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-0.8
-1.0
-1.0
10
12
14
Lag
16
18
20
22
24
10
12
14
Lag
16
18
20
22
24

ARIMA(0,1,1)
Example: First Difference
Autocorrelation Function for first_diff_fad

1.0
Time Series Plot of first_diff_fad
0.8
0.6
Autocorrelation
first_diff_fad
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1
-1.0
2
10
12
-2
14
16
18
20
22
24
Lag
-3
1
1
0
20
30
40
50
60
70
80
90
Partial Autocorrelation Function for first_diff_fad
1
00
Index
1
.0
0.8
As shown in the figure, the first difference have

stationary mean; however, the ACFs and PACFs
show a pattern at the low-order lags in the
figure. The single peak in the ACFs and the
negative exponential decline in the PACFs
starting at lag 1 are indicative of an MA(1)
model.
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1
.0
2
1
0
1
2
1
4
Lag
1
6
1
8
20
22
24

ARIMA(0,1,1)
Example: Fitting an ARIMA(0,1,1)
model
The graph of the residuals appears quite

random. Also, the ACFs and PACFs are both
indicative of white noise.

ARIMA(0,1,1)
Example: Final estimates of the
parameter

Type
MA
1
Coef
0.3955
SE Coef
0.0930
T
4.25

statistic
P
0.000
Differencing: 1 regular difference

Number of observations: Original series 100,
after differencing 99
Residuals:
SS = 147.326 (backforecasts
excluded)
The coefficientMSis =significant
1.503 DF with
= 98 p-value less
than 0.05
Lag
Chi-Square
DF
P-Value
12
8.3
11
0.684
24
18.0
23
0.760
36
28.5
35
0.773
48
35.1
47
0.901
The coefficient is significant

with p-value less than 0.05 and
Ljung-Box Q stat have no
significant lags
The final model
t 1 0.3955et 1 et
t
is,
Y Y
ARIMA (0,1,1)1,1 Model

The time series plot on the left is the
data on Monthly US Stock Index Value,
starting in December 1970 to 1992
(from Survey of Current Business). This
series is clearly non-stationary in level
and its variance is also nonstationary.
Thus, differencing is necessary to make
the data stationary.
Time Series Plot of USIND

500
USIND
400
300
200
100
27
54
81
108
135
Index
162
189
216
243
270
ARIMA (0,1,1)1,1 Model

The time series plot on the left is the
data on Monthly US Stock Index Value,
starting in December 1970 to 1992
(from Survey of Current Business). This
series is clearly non-stationary in level
and its variance is also nonstationary.
Thus, differencing and transformation
are necessary to make the data
stationary.
Time Series Plot of USIND

500
USIND
400
300
200
100
27
54
81
108
135
Index
162
189
216
243
270
ARIMA(0,1,0) model
Autocorrelation Function for USIND
Partial Autocorrelation Function for USIND

1.0
1.0
0.8
0.8
0.6
0.6
Autocorrelation
0.4
0.2
0.0
-0.2
-0.4
-0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-0.8
-1.0
-1.0
10
15
20
25
30
Lag
35
40
45
50
55
60
10
15
20
25
30
35
40
45
50
55
Lag
The ACFs and PACFs graph are somewhat the same with random walk model. The ACFs
linearly decline at lag 1 with many lags significant while the PACFs shows single significant
peak at lag 1.
60
Example: US Stock Index

First Difference
After applying the first difference on the
data, the time series plot seems
stationary at level but the variance
increases with the level level. This
series therefore requires a
transformation to achieve variance
stationairty.
Time Series Plot of usind_diff1

40
30
usind_diff1
20
10
0
-10
-20
-30
-40
-50
1
27
54
81
108
135
Index
162
189
216
243
270

First difference of ln(USIND)
The time series plot of the US Stock
Index after transformation by using
natural logarithms shows that the first
differences have variance stationarity,
the period-to-period changes are
constant as ln Yt increases. Thus, the
percentage variation in Yt is modeled
well by taking natural logarithms.

The ACFs and PACFs of the first differences of ln(USIND)
As shown in the correlogram above, all ACFs except lag 1 are insignificant (single significant
peak at lag 1) and the PACFs have alternating exponential decline starting with a positive.
The single positive spike in the ACFs is indicative of a moving average model MA(1). In
addition, the first alternating spikes of the PACFs confim an MA(1) model.
The
anticiipated
1
MA(1) model will have a negative
.

Fitting an ARIMA(0,1,1)1,1 model
Type
MA
1
Constant
Mean
Coef
-0.3256
0.005621
0.005621
SE Coef
0.0578
0.002886
0.002886
T
-5.63
1.95
P
0.000
0.053

statistic
Lag
Chi-Square
DF
P-Value
12
6.9
10
0.736
24
16.8
22
0.777
36
25.4
34
0.855
48
33.7
46
0.911
Inferences:
1. The first-order MA coefficient
is
1
statistically significantly different
than zero, with p-value < 0.05.
2. The Q-statistic is indicative of
white noise residual.

Fitting an ARIMA(0,1,1)1,1 model
The patternless ACFs and PACFs appear to be those of white noise series.
Descriptive Statistics of US Stock Index

n
Mean
Std. Dev
Min
Max
Stationarity
Level
Variance
White
Noise
Yt
271
188.02
107.26
73.00
452.60
No
No
No
Yt - Yt-1
270
1.309
7.718
-41.80
40.00
Yes
No
No
ln (Yt)
271
5.0951
0.5151
4.2905
6.1150
No
Yes
No
ln(Yt) - ln( Yt-1)
270
0.00565
0.03752
-0.13428 0.11021
Yes
Yes
No
ARIMA(0,1,1)1,1
270
0.00006
0.0357
-0.1162
Yes
Yes
Yes
0.1092
The resulting model is:
e e
ln(Y ) e e
ln(Y ) + 0.005621 + 0.3256e
ln(Y t ) ln(Y t 1)
ln(Y t )
ln(Y t )
t 1
t 1
t 1
t 1
t
t 1
Results from Automatic ARIMA Forecasting

(Eviews)
Automatic ARIMA Forecasting
Selected dependent variable: DLOG(USIND)
Date: 10/06/16 Time: 03:26
Sample: 1 271
Included observations: 270
Forecast length: 0
Number of estimated ARMA models: 9
Number of non-converged estimations: 0
Selected ARMA model: (0,1)
SIC value: -3.75317283253
Dependent Variable: DLOG(USIND)

Method: ARMA Maximum Likelihood (BFGS)
Date: 10/06/16 Time: 03:26
Sample: 2 271
Convergence achieved after 3 iterations
Coefficient covariance computed using outer product of gradients
Variable
Coefficient
Std. Error
t-Statis tic
Prob.
C
MA(1)
SIGMASQ
0.005621
0.324384
0.001271
0.003000
0.052560
8.63E-05
1.873819
6.171738
14.72464
0.0620
0.0000
0.0000
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-s tatistic)
0.093437
0.086646
0.035857
0.343288
516.9581
13.75950
0.000002
Inverted MA Roots
-.32
Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Wats on stat
0.005650
0.037519
-3.807097
-3.767115
-3.791042
2.002421
Results from Automatic ARIMA Forecasting

(Eviews)
Model Selection Criteria Table
Dependent Variable: DLOG(USIND)
Date: 10/06/16 Time: 03:26
Sample: 1 271
-3.71
-3.72
-3.73
-3.74
-3.75
(0,0)
(2,2)
-3.76
(2,1)
-3.77703...
-3.76545...
-3.76443...
-3.76443...
-3.76353...
-3.75661...
-3.75172...
-3.74409...
-3.69243...
-3.70
(1,2)
-3.75317...
-3.74159...
-3.73261...
-3.73261...
-3.73171...
-3.71683...
-3.71194...
-3.69636...
-3.67652...
HQ
(2,0)
-3.79304...
-3.78146...
-3.78578...
-3.78578...
-3.78488...
-3.78329...
-3.77840...
-3.77612...
-3.70310...
BIC*
(1,1)
516.958097...
515.388780...
516.974096...
516.973954...
516.852077...
517.636657...
516.974160...
517.664274...
503.770881...
-3.69
(0,2)
(0,1)
(1,0)
(0,2)
(1,1)
(2,0)
(1,2)
(2,1)
(2,2)
(0,0)
AIC
-3.68
(1,0)
LogL
-3.67
(0,1)
Model
Schwarz Criteria
Other Residual Diagnostic Tools/Measures

Example: Daily sales of dairy products - AR(1)
model
RSE
2
t
n 1
2
t
n 1
361.969
99
= 1.91213
Results from Automatic Arima Forecasting

(Eviews)
model
Equation Output
Summary
Automatic ARIMA Forecasting

Selected dependent variable: SALES
Date: 10/06/16 Time: 05:19
Sample: 1 100
Forecast length: 0
Number of estimated ARMA models: 25
Number of non-converged estimations: 0
Selected ARMA model: (1,0)
SIC value: 4.2716647438
Dependent Variable: SALES

Method: ARMA Maximum Likelihood (BFGS)
Date: 10/06/16 Time: 05:19
Sample: 1 100
Convergence achieved after 4 iterations
Coefficient covariance computed using outer product of gradients
Variable
Coefficient
Std. Error
t-Statistic
Prob.
C
AR(1)
SIGMASQ
199.1172
0.746485
3.623663
0.760346
0.070736
0.545074
261.8770
10.55313
6.648017
0.0000
0.0000
0.0000
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
Inverted AR Roots
0.564192
0.555206
1.932805
362.3663
-206.6755
62.78757
0.000000
.75
Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat
199.0239
2.898069
4.193510
4.271665
4.225140
1.759122
Results from Automatic Arima Forecasting

(Eviews)
model
4.38
4.36
4.34
4.32
4.30
4.28
(3,2)
(4,1)
(1,4)
(3,4)
(2,4)
(0,2)
(3,3)
(0,4)
(4,0)
(2,3)
(2,2)
(3,1)
(1,3)
4.26
(0,3)
4.225140
4.218787
4.232889
4.222271
4.230272
4.245388
4.263882
4.251637
4.252488
4.252515
4.244560
4.260225
4.273982
4.243348
4.310126
4.252822
4.248629
4.282030
4.282944
4.283221
4.264799
4.374361
4.277712
4.313175
5.017003
(3,0)
4.271665
4.280820
4.294922
4.299812
4.307813
4.322928
4.341422
4.344686
4.345537
4.345564
4.353117
4.353274
4.367030
4.367413
4.372158
4.376887
4.388202
4.390586
4.391501
4.391778
4.404372
4.420885
4.432793
4.437240
5.048020
HQ
(1,2)
4.193510
4.176613
4.190715
4.169553
4.177555
4.192670
4.211164
4.188375
4.189227
4.189253
4.170755
4.196963
4.210720
4.158999
4.267952
4.168473
4.153737
4.208225
4.209139
4.209416
4.169906
4.342730
4.172276
4.228826
4.995916
BIC*
(2,1)
-206.675482
-204.830635
-205.535751
-203.477668
-203.877725
-204.633490
-205.558198
-203.418775
-203.461340
-203.462675
-201.537758
-203.848173
-204.536006
-199.949951
-209.397577
-200.423652
-198.686835
-203.411225
-203.456960
-203.470794
-199.495316
-214.136502
-198.613806
-203.441295
-247.795808
4.40
AIC
(2,0)
(1,0)
(1,1)
(2,0)
(2,1)
(1,2)
(3,0)
(0,3)
(1,3)
(3,1)
(2,2)
(2,3)
(4,0)
(0,4)
(3,3)
(0,2)
(2,4)
(3,4)
(1,4)
(4,1)
(3,2)
(4,3)
(0,1)
(4,4)
(4,2)
(0,0)
LogL
(1,1)
Model
Schwarz Criteria (top 20 models)
(1,0)
ARIMA Criteria Table

Date: 10/06/16 Tim e: 05:19
Sam ple: 1 100
Schwarz and Akaike Criteria

Schwarz Bayesian Information Criterion
(BIC)
BIC nLog ( SSE ) + kLog (n)
Akaike Information Criterion
AIC nLog ( SSE ) + 2k

where
k = Number of parameters that are fitted in the model
Log = Natural logarithm
N = Number of observations in the series
SSE = Sum of the squared errors
Schwarz and Akaike Criteria

model
4.38
4.36
4.34
4.32
4.30
4.28
(3,2)
(4,1)
(1,4)
(3,4)
(2,4)
(0,2)
(3,3)
(0,4)
(4,0)
(2,3)
(2,2)
(3,1)
(1,3)
4.26
(0,3)
4.225140
4.218787
4.232889
4.222271
4.230272
4.245388
4.263882
4.251637
4.252488
4.252515
4.244560
4.260225
4.273982
4.243348
4.310126
4.252822
4.248629
4.282030
4.282944
4.283221
4.264799
4.374361
4.277712
4.313175
5.017003
(3,0)
4.271665
4.280820
4.294922
4.299812
4.307813
4.322928
4.341422
4.344686
4.345537
4.345564
4.353117
4.353274
4.367030
4.367413
4.372158
4.376887
4.388202
4.390586
4.391501
4.391778
4.404372
4.420885
4.432793
4.437240
5.048020
HQ
(1,2)
4.193510
4.176613
4.190715
4.169553
4.177555
4.192670
4.211164
4.188375
4.189227
4.189253
4.170755
4.196963
4.210720
4.158999
4.267952
4.168473
4.153737
4.208225
4.209139
4.209416
4.169906
4.342730
4.172276
4.228826
4.995916
BIC*
(2,1)
-206.675482
-204.830635
-205.535751
-203.477668
-203.877725
-204.633490
-205.558198
-203.418775
-203.461340
-203.462675
-201.537758
-203.848173
-204.536006
-199.949951
-209.397577
-200.423652
-198.686835
-203.411225
-203.456960
-203.470794
-199.495316
-214.136502
-198.613806
-203.441295
-247.795808
4.40
AIC
(2,0)
(1,0)
(1,1)
(2,0)
(2,1)
(1,2)
(3,0)
(0,3)
(1,3)
(3,1)
(2,2)
(2,3)
(4,0)
(0,4)
(3,3)
(0,2)
(2,4)
(3,4)
(1,4)
(4,1)
(3,2)
(4,3)
(0,1)
(4,4)
(4,2)
(0,0)
LogL
(1,1)
Model
Schwarz Criteria (top 20 models)
(1,0)
ARIMA Criteria Table

Date: 10/06/16 Tim e: 05:19
Sam ple: 1 100
Additional ARIMA Notation

(AR I MA)C, T (AR I MA) s (AR I MA) S

q C T
P D Q
P D Q
where p, d , and q are as defined previously

P = seasonal level of autoregression
D = seasonal level of differences
Q = seasonal level of moving averages
s = first period of seasonality
S = second period of seasonality
C = 1 for differenced models with nonzero 0, otherwise 0
T = power transformations of Y t , 0 none,1 log s, # power , e.g ., T 0.5
Additional ARIMA Notation

Consider the following examples of ARIMA notation:
Model
Description
ARIMA (1,0,0)
A simple autoregressive series AR(1)
ARIMA (0,0,1)
A simple moving averages MA (1)
ARIMA (0,1,0)
A simple random walk series I(1)
ARIMA (0,1,0)1
A simple trending series I(1)1
ARIMA(0,1,0)121
A seasonal monthly model with trend
ARIMA(1,0,0)4
A quarterly model with seasonal autoregression
ARIMA(1,0,0)1(0,1,0)12
A monthly model with seasonal trend and nonseasonal

autoregression
ARIMA(1,0,0)1(0,1,0)7(0,1,1)36 A daily model with seasonality and nonseasonal

4
autoregression
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D

What ARIMA stands for

Lags of the stationarized series are called autoregressive (AR) terms

Lags of the forecast errors are called moving average

Table 2. Characteristics of a good forecasting

The MAPE is good.

Table 2. Characteristics of a good forecasting

are statistically significant

6. The model is stationary and invertible.

Linear decline at lag 1, with many

Single significant peak at lag 1

Exponential decline, with first 2 or

Single significant peak at lag 1

Alternating exponential decline

Single significant negative peak at

Single significant negative peak at

Exponential decline of negative

Single significant positive peak at

Alternating exponential decline

The Q-Statistic and White Noise Diagnosis

Model has a high R

(i.e., low sum of squares), statistically significant

However, while individual t-tests can be performed on specific lags of

The Q-Statistic and White Noise Diagnosis

The Q-Statistic and White Noise Diagnosis

An ARIMA(1,0,0) model commonly called an AR(1) is written

are coefficients chosen to minimize

the sum of squared errors.

Time Series Plot of sales_dairy

in the right illustrates the

Example: The ACFs and PACFs

Partial Autocorrelation Function for sales_dairy

(with 5% significance limits for the autocorrelations)

(with 5% significance limits for the partial autocorrelations)

The ACFs of the figure above (left) show an exponential decline

Time Series Plot of sales_dairy, FITS1

Time Series Plot of Actual vs Fitted

Residual Plots (no pattern left)

PACF of Residuals for sales_dairy

(with 5% significance limits for the autocorrelations)

(with 5% significance limits for the partial autocorrelations)

As shown, no low-order or seasonal ACFs and PACFs of the residuals are

Final Estimates of Parameters

The final model is,

Modified Box-Pierce (Ljung-Box) Chi-Square

Also, based on the result, the

A process considered AR (1) is the first order process, meaning

Integrated Process ARIMA (0,1,0)

Integrated processes are level-nonstationary series.

because their means (i.e., levels) are not constant or

A random walk model, which is equal to ARIMA(0,1,0)

Integrated Process ARIMA(0,1,0)

Autocorrelation Function for daily_stock_prices

Time Series Plot of daily_stock_prices

Partial Autocorrelation Function for daily_stock_prices

(with 5% significance limits for the partial autocorrelations)

The time series plot of the daily price for a stock

Integrated Process ARIMA(0,1,0)

Autocorrelation Function for first_diff

Time Series Plot of first_diff (Daily Stock Prices)

Partial Autocorrelation Function for first_diff

As shown the first differences have a mean

(with 5% significance limits for the partial autocorrelations)