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PublishedonSTAT510(https://onlinecourses.science.psu.edu/stat510)
Home>1.1OverviewofTimeSeriesCharacteristics

1.1OverviewofTimeSeries
Characteristics
Inthislesson,welldescribesomeimportantfeaturesthatwemustconsiderwhendescribing
andmodelingatimeseries.Thisismeanttobeanintroductoryoverview,illustratedby
example,andnotacompletelookathowwemodelaunivariatetimeseries.Here,wellonly
considerunivariatetimeseries.Wellexaminerelationshipsbetweentwoormoretimeseries
lateron.
Definition:
Aunivariatetimeseriesisasequenceofmeasurementsofthesamevariablecollected
overtime.Mostoften,themeasurementsaremadeatregulartimeintervals.
Onedifferencefromstandardlinearregressionisthatthedataarenotnecessarily
independentandnotnecessarilyidenticallydistributed.Onedefiningcharacteristicoftime
seriesisthatthisisalistofobservationswheretheorderingmatters.Orderingisvery
importantbecausethereisdependencyandchangingtheordercouldchangethemeaningof
thedata.
BasicObjectivesoftheAnalysis
Thebasicobjectiveusuallyistodetermineamodelthatdescribesthepatternofthetime
series.Usesforsuchamodelare:
1.
2.
3.
4.

Todescribetheimportantfeaturesofthetimeseriespattern.
Toexplainhowthepastaffectsthefutureorhowtwotimeseriescaninteract.
Toforecastfuturevaluesoftheseries.
Topossiblyserveasacontrolstandardforavariablethatmeasuresthequalityof
productinsomemanufacturingsituations.

TypesofModels
Therearetwobasictypesoftimedomainmodels.
1. Modelsthatrelatethepresentvalueofaseriestopastvaluesandpastprediction
errorsthesearecalledARIMAmodels(forAutoregressiveIntegratedMoving
Average).Wellspendsubstantialtimeonthese.
2. Ordinaryregressionmodelsthatusetimeindicesasxvariables.Thesecanbehelpful
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foraninitialdescriptionofthedataandformthebasisofseveralsimpleforecasting
methods.
ImportantCharacteristicstoConsiderFirst
Someimportantquestionstofirstconsiderwhenfirstlookingatatimeseriesare:
Isthereatrend,meaningthat,onaverage,themeasurementstendtoincrease(or
decrease)overtime?
Isthereseasonality,meaningthatthereisaregularlyrepeatingpatternofhighsand
lowsrelatedtocalendartimesuchasseasons,quarters,months,daysoftheweek,and
soon?
Aretheiroutliers?Inregression,outliersarefarawayfromyourline.Withtimeseries
data,youroutliersarefarawayfromyourotherdata.
Istherealongruncycleorperiodunrelatedtoseasonalityfactors?
Isthereconstantvarianceovertime,oristhevariancenonconstant?
Arethereanyabruptchangestoeithertheleveloftheseriesorthevariance?
Example1
Thefollowingplotisatimeseriesplotoftheannualnumberofearthquakesintheworldwith
seismicmagnitudeover7.0,fora99consecutiveyears.Byatimeseriesplot,wesimply
meanthatthevariableisplottedagainsttime.

Somefeaturesoftheplot:
Thereisnoconsistenttrend(upwardordownward)overtheentiretimespan.The
seriesappearstoslowlywanderupanddown.Thehorizontallinedrawnatquakes=
20.2indicatesthemeanoftheseries.Noticethattheseriestendstostayonthesame
sideofthemean(aboveorbelow)forawhileandthenwanderstotheotherside.
Almostbydefinition,thereisnoseasonalityasthedataareannualdata.
Therearenoobviousoutliers.
Itsdifficulttojudgewhetherthevarianceisconstantornot.
OneofthesimplestARIMAtypemodelsisamodelinwhichweusealinearmodeltopredict
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thevalueatthepresenttimeusingthevalueattheprevioustime.ThisiscalledanAR(1)
model,standingforautoregressivemodeloforder1.Theorderofthemodelindicates
howmanyprevioustimesweusetopredictthepresenttime.
AstartinevaluatingwhetheranAR(1)mightworkistoplotvaluesoftheseriesagainstlag1
valuesoftheseries.Letxtdenotethevalueoftheseriesatanyparticulartimet,soxt1
denotesthevalueoftheseriesonetimebeforetimet.Thatis,xt1isthelag1valueofxt.
Asashortexample,herearethefirstfivevaluesintheearthquakeseriesalongwiththeirlag
1values:
t xt

xt1(lag1value)

1 13 *
2 14 13
3 8

14

4 10 8
5 16 10
Forthecompleteearthquakedataset,heresaplotofxtversusxt1:

Although,itsonlyamoderatelystrongrelationship,thereisapositivelinearassociationso
anAR(1)modelmightbeausefulmodel.
TheAR(1)model
Theoretically,theAR(1)modeliswritten
xt = + 1 xt1 + wt

Assumptions:
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iid

,meaningthattheerrorsareindependentlydistributedwithanormal
distributionthathasmean0andconstantvariance.
Propertiesoftheerrorswt areindependentofx .
2

wt N (0, w )

Thisisessentiallytheordinarysimplelinearregressionequation,butthereisonedifference.
Althoughitsnotusuallytrue,inordinaryleastsquaresregressionweassumethatthex
variableisnotrandombutinsteadissomethingwecancontrol.Thatsnotthecasehere,but
inourfirstencounterwithtimeserieswelloverlookthatanduseordinaryregression
methods.Welldothingstherightwaylaterinthecourse.
FollowingisMinitaboutputfortheAR(1)regressioninthisexample:
quakes=9.19+0.543lag1
98casesused,1casescontainmissingvalues
Predictor Coef

SECoef T

Constant

9.191

1.819

lag1

0.54339 0.08528 6.37 0.000

5.05 0.000

S=6.12239RSq=29.7%RSq(adj)=29.0%

Weseethattheslopecoefficientissignificantlydifferentfrom0,sothelag1variableisa
helpfulpredictor.TheR2valueisrelativelyweakat29.7%,though,sothemodelwontgive
usgreatpredictions.
ResidualAnalysis
Intraditionalregression,aplotofresidualsversusfitsisausefuldiagnostictool.Theideal
forthisplotisahorizontalbandofpoints.Followingisaplotofresidualsversuspredicted
valuesforourestimatedmodel.Itdoesntshowanyseriousproblems.Theremightbeone
possibleoutlieratafittedvalueofabout28.

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Example2
Theplotatthetopofthenextpageshowsatimeseriesofquarterlyproductionofbeerin
Australiafor18years.
Someimportantfeaturesare:
Thereisanupwardtrend,possiblyacurvedone.
Thereisseasonalityaregularlyrepeatingpatternofhighsandlowsrelatedto
quartersoftheyear.
Theremightbeincreasingvariationaswemoveacrosstime,althoughthatsuncertain.

ThereareARIMAmethodsfordealingwithseriesthatexhibitbothtrendandseasonality,but
forthisexamplewelluseordinaryregressionmethods.
Classicalregressionmethodsfortrendandseasonaleffects
Tousetraditionalregressionmethods,wemightmodelthepatterninthebeerproduction
dataasacombinationoftrendovertimeandquarterlyeffectvariables.
Supposethattheobservedseriesisxt ,fort

= 1, 2, , n

Foralineartrend,uset(thetimeindex)asapredictorvariableinaregression.
Foraquadratictrend,wemightconsiderusingbothtandt2.
Forquarterlydata,withpossibleseasonal(quarterly)effects,wecandefineindicator
variablessuchasSj=1ifobservationisinquarterjofayearand0otherwise.There
are4suchindicators.
iid

Lett N (0, 2 ).Amodelwithadditivecomponentsforlineartrendandseasonal

(quarterly)effectsmightbewritten
xt = 1 t + 1 S1 + 2 S2 + 3 S3 + 4 S4 + t

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Toaddaquadratictrend,whichmaybethecaseinourexample,themodelis
xt = 1 t + 2 t

+ 1 S1 + 2 S2 + 3 S3 + 4 S4 + t

Notethatwevedeletedtheinterceptfromthemodel.Thisisntnecessary,butifweinclude
itwellhavetodroponeoftheseasonaleffectvariablesfromthemodeltoavoidcollinearity
issues.
BacktoExample2:FollowingistheMinitaboutputforamodelwithaquadratictrendand
seasonaleffects.Allfactorsarestatisticallysignificant.
Predictor

Coef

Noconstant

SECoef

0.2193

2.68

0.009

Time

0.5881

tsqrd

0.031214 0.002911 10.72 0.000

quarter_1

261.930

3.937

66.52 0.000

quarter_2

212.165

3.968

53.48 0.000

quarter_3

228.415

3.994

57.18 0.000

quarter_4

310.880

4.018

77.37 0.000

ResidualAnalysis
Forthisexample,theplotofresidualsversusfitsdoesntlooktoobad,althoughwemightbe
concernedbythestringofpositiveresidualsatthefarright.

Whendataaregatheredovertime,wetypicallyareconcernedwithwhetheravalueatthe
presenttimecanbepredictedfromvaluesatpasttimes.Wesawthisintheearthquakedata
ofexample1whenweusedanAR(1)structuretomodelthedata.Forresiduals,however,
thedesirableresultisthatthecorrelationis0betweenresidualsseparatedbyanygiventime
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span.Inotherwords,residualsshouldbeunrelatedtoeachother.
SampleAutocorrelationFunction(ACF)
Thesampleautocorrelationfunction(ACF)foraseriesgivescorrelationsbetweentheseries
xtandlaggedvaluesoftheseriesforlagsof1,2,3,andsoon.Thelaggedvaluescanbe
writtenasxt1,xt2,xt3,andsoon.TheACFgivescorrelationsbetweenxtandxt1,xtandxt
2,andsoon.
TheACFcanbeusedtoidentifythepossiblestructureoftimeseriesdata.Thatcanbetricky
goingasthereoftenisntasingleclearcutinterpretationofasampleautocorrelation
function.WellgetstartedonthatinLesson1.2thisweek.TheACFoftheresidualsfora
modelisalsouseful.TheidealforasampleACFofresidualsisthattherearentany
significantcorrelationsforanylag.
FollowingistheACFoftheresidualsfortheExample1,theearthquakeexample,wherewe
usedanAR(1)model.Thelag(timespanbetweenobservations)isshownalongthe
horizontal,andtheautocorrelationisonthevertical.Theredlinesindicatedboundsfor
statisticalsignificance.ThisisagoodACFforresiduals.Nothingissignificantthatswhat
wewantforresiduals.

TheACFoftheresidualsforthequadratictrendplusseasonalitymodelweusedforExample
2looksgoodtoo.Again,thereappearstobenosignificantautocorrelationintheresiduals.
TheACFoftheresidualfollows:

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Lesson1.2willgivemoredetailsabouttheACF.Lesson1.3willgivesomeRcodefor
examplesinLessons1.1and1.2.
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