Answer to Question #304161 in Finance for Robert

Question

(i) What are the aims of time series analysis? (1marks)

(ii) Describe what a ‘season’ is in the context of a time series and give some examples. (1 marks)

(iii) Describe the stages in obtaining a time series trend using the method of semi-averages. (1 marks)

(iv) Why must forecasts be treated with caution? (2 marks)

Answer 1

1)There are two main goals of time series analysis:

identifying the nature of the phenomenon represented by the sequence of observations, and forecasting (predicting future values of the time series variable).

2)

ii)Seasonality is a characteristic of a time series in which the data experiences regular and predictable changes that recur every calendar year. Any predictable fluctuation or pattern that recurs or repeats over a one-year period is said to be seasonal.eg, if you live in a climate with cold winters and warm summers, your heating costs likely rise in the winter and fall in the summer. You expect the seasonality of your heating costs to recur reasonably every year around the same time.

3)

iii) By semi-averages, it means that averages of two values is obtained, given series is divided into two equal parts and the arithmetic mean of means are termed as semi-averages. Each semi averages is paired with center of time period of its part

4)

iv)The past is no guide to the future, as many factors change e.g. the economy, actions of rivals. Also primary research, if used, can be biased/unrepresentative, if based on small samples.