AutoRegressive Integrated Moving Average(ARIMA)

YIK LUN, KEI

allen29@ucla.edu
This paper is a practice from the book called Analysis of Financial Time Series
by Ruey S. Tsay. All R codes and comments below are belonged to the book
and author.

Example 1
setwd("~/Desktop/Chicago")
suppressPackageStartupMessages(require(timeSeries))
data=read.table("m-ibm6708.txt",header=T)
ibm=data[,2]
t<-length(ibm)
acf(ibm)
m1=acf(ibm)

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0.0

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ACF

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1.0

Series ibm

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15
Lag

plot(m1)
m2=pacf(ibm)
plot(m2)

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Partial ACF

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Series ibm

10

15

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Lag
Box.test(ibm,lag=log(t)) #m=ln(T) gives better performance
##
## Box-Pierce test
##
## data: ibm
## X-squared = 4.2619, df = 6.2186, p-value = 0.6669
Box.test(ibm,lag=log(t),type='Ljung')
##
## Box-Ljung test
##
## data: ibm
## X-squared = 4.3152, df = 6.2186, p-value = 0.6598

Example 2: AR(3) Expansion Duration Example

data<-read.table("dgnp82.txt")
gnp<-data[,1]
gnp1=ts(gnp,frequency=4,start=c(1947,2))
plot(gnp1,type='b')

25

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0.00
0.02

gnp1

1950

1960

1970
Time

acf(gnp,lag=12)

1980

1990

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0.0

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ACF

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1.0

Series gnp

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Lag

pacf(gnp,lag.max=12)

10

12

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0.0
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Partial ACF

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Series gnp

10

Lag

Box.test(gnp,lag=10,type='Ljung') # Compute Q(10) statistics

##
## Box-Ljung test
##
## data: gnp
## X-squared = 43.234, df = 10, p-value = 4.515e-06
m1=ar(gnp,method="mle") # Find the AR order
m1$aic# AIC > or = 0
##
0
## 27.8466897
##
6
## 4.0520840
##
12
## 7.1975452

1
2.7416324
7
6.0254750

2
1.6032416
8
5.9046676

3
0.0000000
9
7.5718635

m1$order #AR(3) is selected based on AIC

## [1] 3

4
0.3027852
10
7.8953337

5
2.2426608
11
9.6788727

12

0.01
0.01
0.03

m1$resid

0.03

plot(m1$resid,type='l')

50

100
Index

Box.test(m1$resid,lag=10,type='Ljung')
##
## Box-Ljung test
##
## data: m1$resid
## X-squared = 7.0808, df = 10, p-value = 0.7178
m2=arima(gnp,order=c(3,0,0)) # Estimation of parameters
Box.test(m2$residuals,lag=10,type='Ljung')
##
## Box-Ljung test
##
## data: m2$residuals
## X-squared = 7.0169, df = 10, p-value = 0.7239
plot(m2$residuals,type='l')

150

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0.03

m2$residuals

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100
Time

tsdiag(m2) # obtain 3 plots of model checking

150

Standardized Residuals

50

100

150

Time

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ACF

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1.0

ACF of Residuals

10

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Lag

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0.0

p value

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1.0

p values for LjungBox statistic

6
lag

10

m2 # In R, "intercept"" denotes the mean of the series.

##
##
##
##
##
##
##
##
##
##

Call:
arima(x = gnp, order = c(3, 0, 0))
Coefficients:
ar1
ar2
0.3480 0.1793
s.e. 0.0745 0.0778

ar3
-0.1423
0.0745

intercept
0.0077
0.0012

sigma^2 estimated as 9.427e-05:

log likelihood = 565.84,

aic = -1121.68

# Constant term calculated by mean of AR

(1-m2$coef[1]-m2$coef[2]-m2$coef[3])*m2$coef[4]
##
ar1
## 0.004723112
sqrt(m2$sigma2) # Residual standard error
## [1] 0.009709322
p1=c(1,-m2$coef[1:3]) # Characteristic equation in c(constant,x,x^2,x^3)
roots=polyroot(p1) # Find solutions
roots
## [1]

1.590253+1.063882i -1.920152+0.000000i

1.590253-1.063882i

Mod(roots) # Compute the absolute values of the solutions

## [1] 1.913308 1.920152 1.913308
k=2*pi/acos(1.590253/sqrt((1.590253)^2+(1.063882)^2)) # K's formula
k
## [1] 10.65638
predict(m2,8) # Prediction 1-step to 8-step ahead.
##
##
##
##
##
##
##
##
##

$pred
Time Series:
Start = 177
End = 184
Frequency = 1
[1] 0.001236254 0.004555519 0.007454906 0.007958518 0.008181442 0.007936845
[7] 0.007820046 0.007703826
$se
9

##
##
##
##
##
##

Time Series:
Start = 177
End = 184
Frequency = 1
[1] 0.009709322 0.010280510 0.010686305 0.010688994 0.010689733 0.010694771
[7] 0.010695511 0.010696190

Example 3: AR(3) with AR(2) coefficient = 0

www<-"http://faculty.chicagobooth.edu/ruey.tsay/teaching/fts3/m-ibm3dx2608.txt"
vw=read.table(www,header=T)[,3]
pacf(vw)

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0.00
0.10 0.05

Partial ACF

0.10

Series vw

10

15
Lag

m3=arima(vw,order=c(3,0,0))
m3
##
## Call:
## arima(x = vw, order = c(3, 0, 0))
##
## Coefficients:
##
ar1
ar2
ar3 intercept
10

20

25

30

##
0.1158 -0.0187 -0.1042
## s.e. 0.0315
0.0317
0.0317
##
## sigma^2 estimated as 0.002875:

0.0089
0.0017
log likelihood = 1500.86,

aic = -2991.73

(1-pnorm(abs(m3$coef)/sqrt(diag(m3$var.coef))))*2 # p-value for coefficients

##
ar1
ar2
ar3
intercept
## 2.372637e-04 5.546234e-01 1.029105e-03 1.145237e-07
(1-m3$coef[1]-m3$coef[2]-m3$coef[3])*m3$coef[4] # Intercept
##
ar1
## 0.009011937
sqrt(m3$sigma2) # Compute standard error of residuals (sigma a)
## [1] 0.0536189
Box.test(m3$residuals,lag=12,type='Ljung')
##
## Box-Ljung test
##
## data: m3$residuals
## X-squared = 16.352, df = 12, p-value = 0.1756
pv=1-pchisq(16.35,9) # Compute p-value using (12-3 coefficients) degrees of freedom
pv
## [1] 0.05992276
# To fix the AR(2) coef to zero:
m3=arima(vw,order=c(3,0,0),fixed=c(NA,0,NA,NA),transform.pars = FALSE)
# The subcommand fixed is used to fix parameter values,
# where NA denotes estimation and 0 means fixing the parameter to 0.
# The ordering of the parameters can be found using m3$coef.
m3
##
##
##
##
##
##
##
##
##
##
##

Call:
arima(x = vw, order = c(3, 0, 0), transform.pars = FALSE, fixed = c(NA, 0, NA,
NA))
Coefficients:
ar1 ar2
0.1136
0
s.e. 0.0313
0

ar3
-0.1063
0.0315

intercept
0.0089
0.0017

sigma^2 estimated as 0.002876:

log likelihood = 1500.69,

11

aic = -2993.38

(1-pnorm(abs(m3$coef[-2])/sqrt(diag(m3$var.coef))))*2 # p-value
##
ar1
ar3
intercept
## 2.833035e-04 7.519576e-04 1.745776e-07
(1-m3$coef[1]-m3$coef[2]-m3$coef[3])*m3$coef[4] # intercept
##
ar1
## 0.008881533
sqrt(m3$sigma2) # Compute residual standard error (sigma a)
## [1] 0.05362832
Box.test(m3$residuals,lag=12,type='Ljung')
##
## Box-Ljung test
##
## data: m3$residuals
## X-squared = 16.828, df = 12, p-value = 0.1562
pv=1-pchisq(16.83,10) # 12- 2 degrees of freedom
pv # p-value is higher
## [1] 0.07821131
predict(m3,8)
##
##
##
##
##
##
##
##
##
##
##
##
##
##
##

$pred
Time Series:
Start = 997
End = 1004
Frequency = 1
[1] 0.030956276 0.021454042 0.009034718 0.006617194 0.007352650 0.008756259
[7] 0.009172633 0.009141748
$se
Time Series:
Start = 997
End = 1004
Frequency = 1
[1] 0.05362832 0.05397307 0.05397750 0.05426946 0.05428470 0.05428514
[7] 0.05428816 0.05428853

12

Example 4
If we combine differencing with autoregression and a moving average model, we
obtain a non-seasonal ARIMA model.
arima(x,order=c(p,d,q),. . . )
p= order of the autoregressive part;
d= degree of first differencing involved;
q= order of the moving average part.
suppressPackageStartupMessages(require(quantmod))
options("getSymbols.warning4.0"=FALSE)
getSymbols("UNRATE",src="FRED")
## [1] "UNRATE"
chartSeries(UNRATE)

UNRATE

[19480101/20150701]

Last 5.3
10

Jan
1948

Jan
1960

Jan
1970

Jan
1980

13

Jan
1990

Jan
2000

Jan
2010

rate

10

rate <- as.numeric(UNRATE[,1])

ts.plot(rate)

200

400
Time

acf(rate)

14

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800

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ACF

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Series rate

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30

Lag
#Differencing can stabilize the mean of a time series, and so eliminating trend and seasonality.
zt=diff(rate)
t.test(zt)
##
##
##
##
##
##
##
##
##
##
##

One Sample t-test

data: zt
t = 0.3147, df = 809, p-value = 0.7531
alternative hypothesis: true mean is not equal to 0
95 percent confidence interval:
-0.01228503 0.01697639
sample estimates:
mean of x
0.002345679

acf(zt)

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ACF

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Series zt

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Lag

pacf(zt)

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Partial ACF

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Series zt

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Lag

m1=ar(zt,lag.max=20,method="mle")
names(m1)
## [1]
## [5]
## [9]
## [13]

"order"
"aic"
"resid"
"call"

"ar"
"var.pred"
"n.used"
"order.max"
"method"
"series"
"asy.var.coef"

"x.mean"
"partialacf"
"frequency"

m1$order
## [1] 12
m2=arima(rate,order=c(12,1,0))
m2
##
##
##
##
##
##
##
##
##

Call:
arima(x = rate, order = c(12, 1, 0))
Coefficients:
ar1
ar2
ar3
ar4
ar5
0.0160 0.2181 0.1474 0.0986 0.1329
s.e. 0.0349 0.0350 0.0357 0.0362 0.0363
ar9
ar10
ar11
ar12
17

ar6
0.0031
0.0366

ar7
-0.0356
0.0366

ar8
0.0152
0.0364

30

##
0.0045 -0.0879 0.0266
## s.e. 0.0363
0.0358 0.0351
##
## sigma^2 estimated as 0.03732:

-0.1293
0.0351
log likelihood = 182,

tsdiag(m2,gof=24)

18

aic = -338

Standardized Residuals

200

400

600

800

Time

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0.0

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ACF

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ACF of Residuals

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Lag

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p value

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1.0

p values for LjungBox statistic

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lag

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30

which((1-pnorm(abs(m2$coef)/sqrt(diag(m2$var.coef))))*2 > 0.05)

##
##

ar1
1

ar6
6

ar7
7

ar8
8

ar9 ar11
9
11

c1=c(0,NA,NA,NA,NA,0,0,0,0,NA,0,NA) ### Remove insignificant parameters

m2a=arima(rate,order=c(12,1,0),fixed=c1,transform.pars = FALSE)
m2a
##
##
##
##
##
##
##
##
##
##
##
##
##

Call:
arima(x = rate, order = c(12, 1, 0), transform.pars = FALSE, fixed = c1)
Coefficients:
ar1
ar2
ar3
0 0.2148 0.1527
s.e.
0 0.0346 0.0338
ar11
ar12
0 -0.1298
s.e.
0
0.0340

ar4
0.1008
0.0341

sigma^2 estimated as 0.03742:

ar5
0.1312
0.0351

ar6
0
0

ar7
0
0

ar8
0
0

log likelihood = 180.98,

ar9
0
0

ar10
-0.0864
0.0345

aic = -347.97

which((1-pnorm(abs(m2$coef[-c(1,6,7,8,9,11)])/sqrt(diag(m2$var.coef))))*2 > 0.05)

## named integer(0)
sqrt(m2a$sigma2) # Compute residual standard error (sigma a)
## [1] 0.1934326
Box.test(m2a$residuals,lag=12,type='Ljung')
##
## Box-Ljung test
##
## data: m2a$residuals
## X-squared = 2.942, df = 12, p-value = 0.9959
pv=1-pchisq(2.942,6) # 12- 6 degrees of freedom
pv # residual looks like white noice.
## [1] 0.8160905
predict(m2a,5)
## $pred
## Time Series:
20

##
##
##
##
##
##
##
##
##
##
##

Start = 812
End = 816
Frequency = 1
[1] 5.292487 5.276253 5.310830 5.258342 5.305775
$se
Time Series:
Start = 812
End = 816
Frequency = 1
[1] 0.1934326 0.2735550 0.3606186 0.4472223 0.5346188

m3=arima(rate,order=c(2,1,1),seasonal=list(order=c(1,0,1),period=12))
m3
##
##
##
##
##
##
##
##
##
##

Call:
arima(x = rate, order = c(2, 1, 1), seasonal = list(order = c(1, 0, 1), period = 12))
Coefficients:
ar1
ar2
0.6026 0.2329
s.e. 0.0600 0.0382

ma1
-0.6010
0.0552

sigma^2 estimated as 0.03571:

sar1
0.5507
0.0670

sma1
-0.8186
0.0481

log likelihood = 198.48,

tsdiag(m3,gof=24)

21

aic = -384.96

Standardized Residuals

200

400

600

800

Time

0.4
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ACF

0.6

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1.0

ACF of Residuals

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25

Lag

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0.0

p value

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1.0

p values for LjungBox statistic

10

15
lag

22

20

30

predict(m3,4)
##
##
##
##
##
##
##
##
##
##
##
##
##

$pred
Time Series:
Start = 812
End = 815
Frequency = 1
[1] 5.297543 5.329502 5.340351 5.307965
$se
Time Series:
Start = 812
End = 815
Frequency = 1
[1] 0.1889781 0.2674703 0.3550340 0.4401560

Reference:
Tsay, Ruey S. Analysis of financial time series. Vol. 543. John
Wiley & Sons, 2005.

23