Lesson 1: What is a time series

Umberto Triacca
Dipartimento di Ingegneria e Scienze dellInformazione e Matematica
Universit`
a dellAquila,
umberto.triacca@univaq.it

Umberto Triacca

Lesson 1: What is a time series

Time series

What is a time series?

Umberto Triacca

Lesson 1: What is a time series

Time series

A time series is a set of observations on a

given variable x collected over the time.

Umberto Triacca

Lesson 1: What is a time series

Time series

If we denote with T the set of time points at which observations

are made,

Umberto Triacca

Lesson 1: What is a time series

Time series

If we denote with T the set of time points at which observations

are made, with xt the observation made at time t,

Umberto Triacca

Lesson 1: What is a time series

Time series

If we denote with T the set of time points at which observations

are made, with xt the observation made at time t, then the time
series is represented by the set

{xt ; t T }

Umberto Triacca

Lesson 1: What is a time series

Time series

No restriction is placed on the nature of T .

Umberto Triacca

Lesson 1: What is a time series

Time series

No restriction is placed on the nature of T . However, two

important cases are when

Umberto Triacca

Lesson 1: What is a time series

Time series

No restriction is placed on the nature of T . However, two

important cases are when
T is a finite set of time points;

Umberto Triacca

Lesson 1: What is a time series

Time series

No restriction is placed on the nature of T . However, two

important cases are when
T is a finite set of time points;
T is a closed time interval.

Umberto Triacca

Lesson 1: What is a time series

Time series

Discrete time series

Umberto Triacca

Lesson 1: What is a time series

Time series

Discrete time series

Continuous time series

Umberto Triacca

Lesson 1: What is a time series

Time series

Discrete time series. A discrete time series is one in which the

set of times at which observations are made is a finite set.

Umberto Triacca

Lesson 1: What is a time series

Time series

Discrete time series. A discrete time series is one in which the

set of times at which observations are made is a finite set.
Continuous time series. A continuous time series is obtained
when the observations are made continuously over some
closed time interval.

Umberto Triacca

Lesson 1: What is a time series

Time series

Consider a discrete time series.

Umberto Triacca

Lesson 1: What is a time series

Time series

Consider a discrete time series. Let the times at which

observations are made be
t1 , t2 , ..., tT

Umberto Triacca

Lesson 1: What is a time series

Time series

Consider a discrete time series. Let the times at which

observations are made be
t1 , t2 , ..., tT
satisfying
t1 < t2 < ... < tT .

Umberto Triacca

Lesson 1: What is a time series

Time series

Consider a discrete time series. Let the times at which

observations are made be
t1 , t2 , ..., tT
satisfying
t1 < t2 < ... < tT .
If the time points are equally spaced

Umberto Triacca

Lesson 1: What is a time series

Time series

Consider a discrete time series. Let the times at which

observations are made be
t1 , t2 , ..., tT
satisfying
t1 < t2 < ... < tT .
If the time points are equally spaced (i.e. ti+1 ti = for all
i = 1, ..., T 1, where > 0 is a constant),

Umberto Triacca

Lesson 1: What is a time series

Time series

Consider a discrete time series. Let the times at which

observations are made be
t1 , t2 , ..., tT
satisfying
t1 < t2 < ... < tT .
If the time points are equally spaced (i.e. ti+1 ti = for all
i = 1, ..., T 1, where > 0 is a constant), we call the time
series regularly sampled.

Umberto Triacca

Lesson 1: What is a time series

Time series

Consider a discrete time series. Let the times at which

observations are made be
t1 , t2 , ..., tT
satisfying
t1 < t2 < ... < tT .
If the time points are equally spaced (i.e. ti+1 ti = for all
i = 1, ..., T 1, where > 0 is a constant), we call the time
series regularly sampled. Otherwise, the sequence of observations
is called irregularly sampled time series.

Umberto Triacca

Lesson 1: What is a time series

Time series

When we consider a discrete regularly sampled time series, the

observation dates (periods) are denoted by integers t = 1, 2, ..., T

Umberto Triacca

Lesson 1: What is a time series

Time series

When we consider a discrete regularly sampled time series, the

observation dates (periods) are denoted by integers t = 1, 2, ..., T
Thus a discrete regularly sampled time series on one variable x
with T observations, will be represented by the sequence
{x1 , x2 , ..., xT }

Umberto Triacca

Lesson 1: What is a time series

Time series

We will consider only discrete regularly sampled time series

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded annually,

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded annually, quarterly,

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded annually, quarterly, monthly,

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded annually, quarterly, monthly, weekly,

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded annually, quarterly, monthly, weekly, daily,

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded annually, quarterly, monthly, weekly, daily,

...,

Umberto Triacca

Lesson 1: What is a time series

Time series

An important feature of time series data is the frequency at which

the data are collected:
the sampling frequency

Series can be recorded annually, quarterly, monthly, weekly, daily,

..., every minutes.

Umberto Triacca

Lesson 1: What is a time series

Time series

In economics, the most common frequencies are:

Umberto Triacca

Lesson 1: What is a time series

Time series

In economics, the most common frequencies are:

annual,

Umberto Triacca

Lesson 1: What is a time series

Time series

In economics, the most common frequencies are:

annual,
quarterly,

Umberto Triacca

Lesson 1: What is a time series

Time series

In economics, the most common frequencies are:

annual,
quarterly,
monthly,

Umberto Triacca

Lesson 1: What is a time series

Time series

In economics, the most common frequencies are:

annual,
quarterly,
monthly,
daily

Umberto Triacca

Lesson 1: What is a time series

Time series

Thus we can have annual, quarterly, monthly, weekly, daily time

series.

Umberto Triacca

Lesson 1: What is a time series

Time series

Thus we can have annual, quarterly, monthly, weekly, daily time

series.
the GDP in a country in successive years

Umberto Triacca

Lesson 1: What is a time series

Time series

Thus we can have annual, quarterly, monthly, weekly, daily time

series.
the GDP in a country in successive years
the money supply in a country in successive quarters

Umberto Triacca

Lesson 1: What is a time series

Time series

Thus we can have annual, quarterly, monthly, weekly, daily time

series.
the GDP in a country in successive years
the money supply in a country in successive quarters
the number of international airline passengers in successive
months

Umberto Triacca

Lesson 1: What is a time series

Time series

Thus we can have annual, quarterly, monthly, weekly, daily time

series.
the GDP in a country in successive years
the money supply in a country in successive quarters
the number of international airline passengers in successive
months
the returns of IBM stock on successive days.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

A important tool in time series analysis is the time series graph.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

A important tool in time series analysis is the time series graph.

A time series graph is a scatter plot with the observation
values on the y -axis and the corresponding dates on the
x-axis.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

Consider, for example, the monthly time series of the international
airline passengers Jan 49 -a Dec 60.

Figure : International airline passengers: monthly totals in thousands.

Jan 49 - Dec 60

Umberto Triacca

Lesson 1: What is a time series

The time series graph

However, it is often convenient to join up consecutive points in
time as in the following figure.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

However, it is often convenient to join up consecutive points in
time as in the following figure.

Figure : International airline passengers: monthly totals in thousands.

Jan 49 - Dec 60

Umberto Triacca

Lesson 1: What is a time series

The time series graph

However, it is often convenient to join up consecutive points in
time as in the following figure.

Figure : International airline passengers: monthly totals in thousands.

Jan 49 - Dec 60

This graph is called a time series plot.

Umberto Triacca

Lesson 1: What is a time series

Time series

Figure : 1

Umberto Triacca

Lesson 1: What is a time series

Time series

Figure : 2

Umberto Triacca

Lesson 1: What is a time series

Time series

Figure : 3

Umberto Triacca

Lesson 1: What is a time series

Time series

Figure : 4

Umberto Triacca

Lesson 1: What is a time series

The time series graph

By plotting data as a function of time, we can gain insight into
several data features. These features include:

Umberto Triacca

Lesson 1: What is a time series

The time series graph

By plotting data as a function of time, we can gain insight into
several data features. These features include:
1

Trend: a tendency, a long term change in the mean level;

Umberto Triacca

Lesson 1: What is a time series

The time series graph

By plotting data as a function of time, we can gain insight into
several data features. These features include:
1

Trend: a tendency, a long term change in the mean level;

Seasonality: an intra-year fluctuation that is more or less

stable year after year with respect to timing, direction and
magnitude;

Umberto Triacca

Lesson 1: What is a time series

The time series graph

By plotting data as a function of time, we can gain insight into
several data features. These features include:
1

Trend: a tendency, a long term change in the mean level;

Seasonality: an intra-year fluctuation that is more or less

stable year after year with respect to timing, direction and
magnitude;

Cycle: an inter-year periodic fluctuation around the trend,

revealing a succession of phases of expansion and contraction;

Umberto Triacca

Lesson 1: What is a time series

The time series graph

By plotting data as a function of time, we can gain insight into
several data features. These features include:
1

Trend: a tendency, a long term change in the mean level;

Seasonality: an intra-year fluctuation that is more or less

stable year after year with respect to timing, direction and
magnitude;

Cycle: an inter-year periodic fluctuation around the trend,

revealing a succession of phases of expansion and contraction;

Outliers: values that do not appear to be consistent with the

rest of the data;

Umberto Triacca

Lesson 1: What is a time series

The time series graph

By plotting data as a function of time, we can gain insight into
several data features. These features include:
1

Trend: a tendency, a long term change in the mean level;

Seasonality: an intra-year fluctuation that is more or less

stable year after year with respect to timing, direction and
magnitude;

Cycle: an inter-year periodic fluctuation around the trend,

revealing a succession of phases of expansion and contraction;

Outliers: values that do not appear to be consistent with the

rest of the data;

Turning points: different trends within a series;

Umberto Triacca

Lesson 1: What is a time series

The time series graph

By plotting data as a function of time, we can gain insight into
several data features. These features include:
1

Trend: a tendency, a long term change in the mean level;

Seasonality: an intra-year fluctuation that is more or less

stable year after year with respect to timing, direction and
magnitude;

Cycle: an inter-year periodic fluctuation around the trend,

revealing a succession of phases of expansion and contraction;

Outliers: values that do not appear to be consistent with the

rest of the data;

Turning points: different trends within a series;

Discontinuities: an unexpected shift, a sudden change of level.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

An increasing trend is apparent in the number of divorces in Italy

Figure : Annual number of divorces in Italy from 1995 to 2007

Umberto Triacca

Lesson 1: What is a time series

The time series graph

A clear seasonal component is contained in the series presented in

the following Figure.

Figure : Industrial production - total industry (excluding construction) in

Italy, Index (2005 = 100) from January 1990 to February 2010.

Umberto Triacca

Lesson 1: What is a time series

A cyclic component is present in the following time series.

Figure : Sunspots Number. July 1969 to September 2007.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

Figure : Daily returns of the Dow Jones Industrials index from 80/01/02
to 89/12/29

Direct inspection of figure suggests the series of daily returns of

the Dow Jones Industrials index contains some outliers.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

Figure : Daily returns of the Dow Jones Industrials index from 80/01/02
to 89/12/29

Direct inspection of figure suggests the series of daily returns of

the Dow Jones Industrials index contains some outliers. In
particular, the crash of October 19, 1987.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

A turning point is present in the unemployment rate in Italy.

Figure : Quarterly unemployment rate in Italy 2000.1-2009.4

Umberto Triacca

Lesson 1: What is a time series

The time series graph

The annual U.S. price index for gasoline is shown in this Figure. It
appears from the graph the presence of a structural break in the
data.

Figure : Annual U.S. price index for gasoline from 1960 to 1995

Umberto Triacca

Lesson 1: What is a time series

The time series graph

In summary, a time series plot is a valuable tool used in order to

identify patterns in the data.

Umberto Triacca

Lesson 1: What is a time series

The time series graph

In summary, a time series plot is a valuable tool used in order to

identify patterns in the data.
bigskip
A good picture is better than 1000 words

Umberto Triacca

Lesson 1: What is a time series

Time series

A question:

Umberto Triacca

Lesson 1: What is a time series

Time series

A question:

Why we want to study a time series?

Umberto Triacca

Lesson 1: What is a time series

Time series

The main objective for analyse a time series is to forecast its

future values

Umberto Triacca

Lesson 1: What is a time series

Time series

In order to reach this goal we need of a model of the mechanism

that has generated the series.

Umberto Triacca

Lesson 1: What is a time series

Time series

In order to reach this goal we need of a model of the mechanism

that has generated the series.
A model of the so-called Data Generator Process (DGP).

Umberto Triacca

Lesson 1: What is a time series