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DISTRIBUTION OF THE ERROR TERM OF THE MULTIPLICATIVE TIME SERIES MODEL UNDER INVERSE SQUARE ROOT TRANSFORMATION.

ABSTRACT This study focus on investigate and distribution of the error term ( ) of the multiplicative time series model under the inverse square root transformation, whose distribution is normal with mean are and ( ) with a view in establishing the condition for a successful transformation, variance considering the usefulness of data transformation in time series modeling. Firstly, the probability density function of the inverse square root transformed error term was obtained. Secondly, the condition under much the inverse square root transformed error component is bell shaped and symmetrical about the mean, one was investigated. Furthermore expressions for the mean and variance of the transformed error term were also derived. It is also important to mention that the conditions for the coincidence of the curve shapes implies similar distributional characteristics such as equality of means and variance this would be our primary interest. Key Words: multiplicative time series model, inverse square root transformation, error component, left truncated normal distribution

AIMS AND OBJECTIVES The aims and objectives of this research work are as follows; 1. To obtain Probability Density Function (pdf) of the error form of the inverse square root transformation model. 2. To show that the Probability Density Function (pdf) obtained is a proper pdf. 3. To obtain a functional expression for the mean and variance of the error term of the transformed series.

Probability Density Function Of The Error Term ( ) Of The Multiplicative Time Series Model

A multiplicative time series model is given by ( ) ( ) The inverse square root transformation is applied to model (2), to obtain ( )

Where

, Which is also a multiplicative time series model, the

various assumptions of the random component are that they are independent, indentically distributed normal errors with mean, one and constant variance ( ) It is important to note that the probability density function (pdf) of the error term of the multiplicative time series model is the same as that of the left truncated normal random variable X. The left truncated normal distribution with probability density ( ) { ( ) } ( ) as given by Uche (9) is

The distribution (3) is said to be truncated to the left at zero and k is the normalizing quantity. By Halds convention, (Hald (1952)) ( ) Where ( ) is given by ( ) { ( ) } ( ) is given by ( ) ( )

Using the pdf of the left truncated normal variable X given by Uche (9), Iwueze (6) obtained the pdf of the left truncated normal distribution ( ( transformation as
( )

)) using the technique of the standard normal

( ) [ * +] 2

With

( ) And [ * +]

( ) [ * +]

( )

]] [ * +] [ [ * +] ]

In this paper, we would first investigate the claim by Iwueze (6) that Uche,s convention (9) and Halds convention (Hald (1952)) are the same. Using the Halds convention given in (4), we have ( ) If we let ( ) { ( ) } [ [ ( )] ( ( ) { ( ) } ( )

)]

That is { ( ) } [ ( )] ( )

If we substitute (10) into (9) we have


( )

( ) [ * +]

Which is the same result obtained by Iwueze (6) and this ascertains his claim. 3

The Probability Density Function (pdf) of the error term after the inverse square root transformation ( ) was obtained using the change of variable technique thus; Given that
( )

( ) Using the transformation

( [ * +]

in (12) above, we then find the probability density function (pdf) of and , but the probability density function (pdf) of is

, which implies that

given as: ( ) ( ) | |, where | | is the absolute value of the Jacobian of the inverse transformation. Thus ( )
(

( )|
)

*
(

(
)

)+

)+
( )

( )

)+

{ In what follows, we show that ( ) is a proper pdf, by showing that its integral is equal to one: