CHAPTER 5 (Compatibility Mode) PDF

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CHAPTER 5
The word univariate is a unification of two words, uni which means one and variate which is another word for variable. Hence, univariate models belong to a class of models which require only one variable to be formulated. As a forecasting tool it is simple, less costly and easier to understand.
UNIVARIATE MODELLING TECHNIQUES

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Forecasting Scenario
Historical periods: Modelling part Future: Forecast part
ERROR MEASURES
The criterion used to differentiate between a poor forecast model and a good forecast model is called error measure. The usual measurement being error measure that has the smallest value. There is no particular error measure has been found to be best under all situations and for all model types.
2.5 2 1.5 yt
Two-step-ahead Three-step-ahead
1 0.5 0 t-4 t-3 t-2 t-1

One-step-ahead
time (t)
t+1
t+2
t+3
t+4
Figure 5.1: Forecasting scenario

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Forecast point of origin

3
A truly good model will be identified when the most number of error measures employed in the evaluation process give similar favorable results to the model.
POPULAR ERROR MEASURES

Mean Squared Error (MSE) Root Mean Squared Error (RMSE) Mean Absolute Squared Error (MAPE) q Error ( (GRMSE) ) Geometric Root Mean Squared
MEAN SQUARE ERROR

Advantage easy to understand and to calculate - when used outside sample usually matches the within sample criterion. An accidence of large error would significantly influence the value of the MSE. The MSE is given as
MSE =
e
t
2 t
n ) for which e t = y t y t
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MEAN ABSOLUTE PERCENTAGE ERROR(MAPE)

MAPE is written by
General Classifications of Single Variable Models
Nave Models
Naive forecast Nave with trend forecast
MAPE =
t =1
(e
/ y t ) 100 n
Methods of Averages
Average forecast Average change model Average percent change model
where n effective data points
(e
/ y t ) 100 absolute percentage error
Exponential Smoothing Techniques

Single exponential smoothing Double exponential smoothing Holts method Adaptive response rate exponential smoothing Holt-Winters trend and seasonality
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Nave forecast
This model strongly believes that what happens today will happen again tomorrow or any other time in the future. Let the variable be y t and the corresponding , , , , , to be values at time t=1,2,3,4,.,t
This model works best when the actual historical data series contains no discernible pattern. It performs well in series which exhibits a slow change in the fluctuations. Sudden change in the current data would severely affect the accuracy of the forecast values.
y1 , y 2 , y 3 , y 4, ......, y t
Hence, mathematically the model can be represented as,
F t +m = yt
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Naive with trend model BENCH MARK model usually pitted against more complex models. The decision on the superiority of a particular model over another is decided based on the values of the error measures of the benchmark and the competing models.
The nave model is modified to take into account of the trend component. it can be used even with fairly short time series. overcoming the common problem of insufficient data which is a common phenomenon in many organisations. The one-step-ahead forecast is represented as, y Ft+1 = yt t yt1
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Naive with trend model

This model implies that all future forecasts can be set to equal the actual observed value in the most recent time period plus the growth rate, that is the trend value as measured by y t
y t 1
Naive with trend model

It is highly sensitive to the changes in the actual values, a sudden drop or sharp increase in the values will severely affect the forecast. By fitting this model type will result in the loss of the first two observations in the series.
F98 = y 97 y 97 y 96
Hence, if y t is greater than y t 1 then the trend is and conversely upward If y t is less than y t 1 then the trend is downward.
109.9 = 109 .9 107.0 = 112 .9
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Method of averages
120.0 100.0
In d ic e s
80.0 60.0 40.0 20.0 0.0
Average/Mean forecast Ft +m = y where Ft +m is the forecast for m-step-ahead made at period t,
y refers to the arithmetic mean of the actual historical time series and is defined as
y=
,
Year
Indices Fitted
y
t =1
t =n
where n is the number of observations in the time series.

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Method of averages
The method assumes that the forecast value equals to the average value of the data series over the historical time period the data were collected. This method necessitates the forecast value to be recalculated whenever a new observation is obtained and added to the existing series. The method performs most satisfactorily when the historical time series contains no discernible pattern, significant drop or growth.
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Method of averages
For series that fluctuate randomly around a constant value, the mean of the data set provides a good estimate of the forecast value. However, the existence of extreme values may significantly influence the outcome of the forecast.
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Average change model

120.0 100.0 80.0
Is widely used by organisations because of its stability and practicability. It is based on the premise that the forecast value is equal to the actual value in the current period plus the average of the absolute changes experienced up to that point in time.
I n d ic e s
60.0 40.0 20.0 0.0
Ft +m = y t + Average of Changes
Year
Indices Fitted
where Average of Changes = ( y t y t 1 ) + ( y t 1 y t 2 ) 2

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When significant changes are observed in the data series, then the average of more than two changes will be able to stabilise better the Average of Changes value Similar to the nave with trend model - except that y all historical observations it is less influenced by and it responses relatively quickly to changes in the actual time series. This model is most useful when the historical data being analysed are characterised by period-toperiod changes that are approximately of the same size (very little difference between

Is suitable for short data series i.e. when forecasting for new products. This model tends to lag behind turning points and that all periods are weighted equally, p of their importance, p , when deriving g irrespective the forecast values. The average change model can provide useful short-term to intermediate-term forecasts when the actual time series is dominated by a consistent pattern of changes.
( yt yt 1 ) + ( yt 1 yt 2 )
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F98 = y97 +
(y97 y96) + (y96 y95 ) 2 ( 109 .9 107 .0) + (107 .0 103 .4) = 109 .9 + 2 = 131 .1
120.0 100.0 80.0
Indices
60.0 40.0 20.0 0.0
Year
Indices
Fitted
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Average percent change model

The average percentage change model is measured in relative term. It assumes that the forecast of the dependent variable equals to the actual level of that period p plus the variable in the current time p average of the percentage changes from one time period to the next. The most significant aspect is that the forecasts are generated based on percentage changes in the historical data. Most appropriate for time series that exhibit a constant p percentage g g growth rate. Is also suitable for short data series.
Ft +m = y t + Average of Percent Changes

y y t 2 y t y t 1 ) + ( t 1 ) ( y y t 2 t 1 yt APC = 2
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May be unsuitable for forecasting beyond one or two months period since the compounding effect will, over time, produces very high forecasts. Assigns equal weight to all historical time periods.
F98 ( y 97 y 96 ) ( y 96 y 95 ) + y 96 y 95 y 97 = y 97 + 2 109.9 107.0 107.0 103.4 + 107.7 103.4 109.9 = 109.9 + 2 = 113.3
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Row No.
1 2 3 4 5 6 -
Year 1960 1961 1962 1963 1964 -
Indices 31.3 31.3 31.3 32.2 32.1 -
Fitted =B4+((((B4-B3)/B3)+((B3B2)/B2))/2)*B4 =B5+((((B5-B4)/B4)+((B4B3)/B3))/2)*B5 -
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Year 1960 1961 1962 1963 1964 1965 1966 1967 1975 1976 1977 1978
Indices 31.3 31.3 31.3 32.2 32.1 32.9 33.4 34.8 49.7 51.1 53.5 55.9
Fitted 31.3 32.7 32.5 33.3 34.1 53.9 55.1 53.0 55.5 Forecast
Year 1979 1980 1981 1982 1983 1984 1985 1986 1994 1995 1996 1997 1998
Indices 57.8 61.8 67.8 71.7 74.4 77.0 77.3 77.8 100.0 103.4 107.0 109.9
Fitted 58.5 60.1 65.0 73.4 77.2 77.9 79.8 78.8 100.4 103.6 107.1 110.7 113.3
120.0 100.0
In d ic e s
80.0 60.0
40.0 20.0 0.0
Year
Indices
Fitted
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Is the most widely used class of univariate time series modelling techniques. Extremely simple to understand and to apply. l Its application involves the building and re-estimating new models as new information/data point is obtained.
Disadvantage, the forecast values generated tend to be biased, i.e. they tend to be either over or under forecast. As such the errors are non-random.
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Advantages of ES method: i. mesh easily with computer system, so, will easily use spreadsheet program (excel). ( ) ii. Data storage requirement are minimal. iii.Embody the advantages of a weighted moving average. iv.React more quickly to changes in data pattern than the MA. v. Do not require many data, differ from BJ & Econometric modelling.

Five common type of ES: 1. 2. 3. 4. 5. Single ES. Double ES. Holts method. Adaptive Response Rate ES (ARRES) Holt-Winter Trend & Seasonality
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Single Exponential Smoothing

Also known as simple exponential smoothing technique which requires only one parameter, the smoothing constant, , to generate the fitted values and hence forecast. g over moving g average: g Advantage 1. 2. it takes into account the most recent forecast it requires the retention of only a limited amount of data. There is no need to store data for many periods. The equation for single exponential smoothed statistics:
Ft +m = y t + (1 )Ft
is the unknown smoothing constant to be determined with value lying between 0 and 1, 1 i.e.
0 1
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Determining the Best Value of

In fact these coefficients represent the amount of contribution each previous observation makes in the calculation of the most recent estimate, that is the forecast.
.
Two ways the value of i. subjectively, or ii. objectively
can be determined:
An important point to note is that, the values of these coefficients lose their significance as we move further and further into the past.
The first procedure relies heavily on ones personal knowledge and past experience of the variable involved. (Note: The value of approaches one when there is rapid changes in the data set).
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Determining the Best Value of

Small alpha is to be used for time series data that are relatively stable. If dealing with a series that changes rapidly, rapidly a larger alpha is desirable because the resulting weights tend to place greater importance on the more recent observations.
The objective method requires the application of certain measurement criterion that can be used to determine the best value of Here, best is taken to mean that by applying a particular value then a certain measurement criterion is minimised. Common name g given to such measurement criterion is error measure. Some well known error measures are Mean Squared Error (MSE), Root Mean Squared Error (RMSE) and Mean Absolute Percent Error (MAPE).
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The objective is to choose the alpha value that minimises the errors i.e. an alpha that results in the smallest error measure. Let the error measure be the Mean Squared Error (MSE). Hence, the process of fitting the model is such that when the basically the search for n 2 i used, is d th then th the et MSE = t =1 (calculated over n
Fitting the Single Exponential Model

Use the CPI data. The exponential smoothing technique is basically an iterative procedure which begins from a certain starting g or initial p point. Consider, Ft +1 = y t + (1 )Ft which is a one-step-ahead forecast made at time t (with m=1).
points of time) is minimised, where
et = yt Ft
yt
is the most recent observation. Now, putting

F1+1 = y 1 + (1 ) F1
t=1 we have,
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By letting t = 0, results in the following equation,

F1 = y 0 + (1 )F0 In the above equation, we
Steps in fitting models

1. Assume an initial smoothed or start-up value for F1 and alpha. 2. Calculate the estimated/smoothed values. 3 Calculate the error 3. 4. Calculate MSE 5. Calculate different values of MSE 6. Find the best alpha value (considering the smallest value of MSE).NURUL NISA' 7/19/2010
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need the values of to generate the value of F1 there is no values for y 0 as initial or start-up values.
y0
and
F0
which is impossible since and F0 which are known
Note: Fitting the exponential smoothing model does not require any testing of significance of the parameter because the errors generated are biased. The check on the goodness of fit basically depends on locating the value of that minimises the errors.
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Fitting the Single Exponential Model Using Excel

Row No.
Fitting Single Exponential Smoothing
A
( 1960 1961 1962 1963 1964 . .
C
) (
D
) =B2-C2 =B3-C3 =B4-C4 =B5-C5 =B6-C6 . . Total
The Excel instructions used to generate the one step ahead forecasts are given in the one-step-ahead following table. In this example, the value of smoothing constant used is 0.9.
1 2 3 4 5 6 -
yt
31.3 31.3 31.3 32.2 32.1 . .
Ft
31.3
=D2^2 =D3^2 =D4^2 =D5^2 =D6^2 .
=(0.9*B2)+(0 .1*C2) =(0.9*B3)+(0 .1*C3) =(0.9*B4)+(0 .1*C4) =(0.9*B5)+(0 .1*C5) . .
=sum(E2:E39)
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Using Solver to Determine Parameter Values Different values of values of MSEs.
produce different
Setting the necessary equations
0.2 0.4 0.6 0.8 0.85
MSEs 109.17 34.82 17.42 10.60 9.54
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Opening the SOLVER
Insert Constraints
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Returning to the Main Box
Obtaining the Solution using Solver
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Using Minitab to generate the forecast values Inputting the information
Specify the stored information
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Using SPSS to generate the forecast values The results obtained Setting the SPSS instructions
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To generate the forecast values
The results
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Double Exponential Smoothing Also known as Browns method. Is useful for series that exhibits a linear trend characteristic. Let,
There are four main equations involved,

St = yt + (1 ) St 1
S t' = S t + (1 ) S t' 1
St
S t'
be the exponentially smoothed value of yt at time t be the double exponentially smoothed value of yt at time t
a t = 2 S t S t'
bt =
( S t S t' )
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Forecasts for m-step-ahead are computed using the equation, F = a +b m

t +m t t
Ft +m is the forecast at period m made in period t,

for m=1,2,3,4,. . For m = 1 the forecast value is,
Ft +1 = a t + bt 1
For 2-step-ahead the forecast, i.e. for m=2,

Ft + 2 = at + bt 2
Main advantage: (over single exponential) is its ability to generate multiple-aheadforecasts, i e the equation is able to generate i.e. the one, two, three and so forth ahead-forecast values.
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Some simple calculations manually to obtain the estimated values.

For the initial values for S t and S use the first value in the series.
' t
' ' S 61 = 0.6 ( S 2 ) + (1 0.6) S 60
=0.6(31.3)+(0.4)(31.3) =18.78+12.52 =31.3

' a 61 = 2 S 61 S 61
Thus, the CPI value for the year 1960 is 31.3. A Assume also l = 0.6 0 6 th then, th the estimate ti t f for 1961 is calculated as follows,
S 61 = 0.6 ( y 61 ) + (1 0.6) S 60
=2(31.3) -31.3 =31.3

b61 = ( 0.6 ' )( S 61 S 61 ) 0.4
=0.6(31.3)+(0.4)(31.3) =18.78+12.52 =31.3

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0.6 (31.3 31.3) 0.4
Fitting Double Exponential Model using Excel Software (Excel Instructions to fit Double Exponential Smoothing)
=0 Therefore the estimated/forecast value for 1962 made in 1961 is,

Row No. 1 Year 2 3 4 5 1960 1961 1962 1963 1964 1965 A B C D E F G
yt
31 3 31.3 31.3 31.3 32.2 -
St
31 3 31.3 =(0.6*B3)+( 0.4*C2) =(0.6*B4)+( 0.4*C3) =(0.6*B5)+( 0.4*C4) -
S t'
31 3 31.3 =(0.6*C3)+( 0.4*D2) =(0.6*C4)+( 0.4*D3) =(0.6*C5)+( 0.4*D4) -
at
31 3 31.3 =2*C3-D3 =2*C4-D4 =2*C5-D5 -
bt
0 =(0.6/0.4) *(C3-D3) =(0.6/0.4) *(C4-D4) =(0.6/0.4) *(C5-D5) -
Ft
31 3 31.3 31.3 =E3+F3*1 =E4+F4*1 -
F 62 = a 61 + b61 1
=31.3+0x1
yt
=31.3
yt
6 7
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Actual and Fitted Values (Double Exponential Fitted Values using Double Exponential Smoothing
Row No . 1 2 3 4 5 6 A B C D E F G
Smoothings)
Year 1960 1961 1962 1963 1964 -
yt
31.3 31.3 31.3 32.2 32.1 103.4 107.0 109.9
St
31.3 31.3 31.3 31.8 32.0 101.1 104.6 107.8
S t'
31.3 31.3 31.3 31.6 31.8 98.8 102.3 105.6
at
31.3 31.3 31.3 32.1 32.1 103.4 107.0 110.0
bt
0 0.0 0.0 0.3 0.2
Ft
31.3 31.3 31.3 31.3 32.4 120.0 100.0 80.0 60.0 40.0 20.0 0.0
Year
Indices
Fit ted
37 38 39 40
1995 1996 1997 1998
3.5 3.5 3.3 Forecast
103.5 106.9 110.5 113.3
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Holts method
is called Holts two parameter method. Frequently used to handle data with linear trend, it not only smoothes the trend and the slope directly by using different smoothing constants but also provides more flexibility in selecting the rates at which the trend and slopes are tracked.
Three equations:
1) Exponential smoothed 2) Trend estimation 3) Forecast
St = yt + (1 )( St 1 + Tt 1 )
Tt = ( S t S t 1 ) + (1 )Tt 1
Ft + m = St + Tt m
The values of range from 0 to1.
and
Fitting Holts method using Excel software

The solution can be divided into two approaches: 1) the forecaster determine the best value of and based on data characteristics. 2) let the data series itself determine the value of f and d . First approach requires significant amount of experience in data handling and modelling, while second approach use computer.
Fitting Holts method using Excel software
Let the values of and be set priori at 0.6 and 0.2, respectively. The estimated values are generated based on the one-step-ahead procedure. The value of MSE for =0.6 and =0.2 is 2.512.
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Excel Instructions to fit the Holts model
Fitted Values using Holts Model
Row No. 1 2 3 4 5
Year A Year 1960 1961 1962 1963 B C D E 1960 1961 0 =0.2*(C3C2)+(0.8*D2) =0.2*(C4C3)+(0.8*D3) =0.2*(C5C4)+(0.8*D4) 31.3 1962 31.3 31.3 32.2 =(0.6*B3)+(0.4)*(C2+D2) =(0.6*B4)+(0.4)*(C3+D3) =(0.6*B5)+(0.4)*(C4+D4) 31.3 =C3+ D3*1 1963 1977 1978
yt
31.3 31.3 31.3 32.2 53.5 55.9
St
31.3 31.3 31.3 31.8 53.4 55.8
Tt
0.0 0.0 0.0 0.1 2.3 2.3
Ft
31.3 31.3 31.3 31.3 53.2 55.7
Year 1979 1980 1981 1982 1996 1997 1998
yt
57.8 61.8 67.8 71.7 107.0 109.9
St
57.9 61.2 66.1 70.7 106.6 109.9 Forecast
Tt
2.3 2.5 3.0 3.3 3.2 3.2
Ft
58.1 60.2 63.7 69.1 106.0 109.8 113.1
yt
31.3
St
31.3
Tt
Ft
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Fitted and Actual Values Using Holts Method
Adaptive Response Rate Exponential Smoothing (ARRES) Usually, the value of alpha parameter used is assumed constant for all time periods. However, over time events may take place that affect the subsequent data behaviour. As an example, people may change their desire to buy a certain product or there is the change in the level of output as a result of technological change or innovation.
120.0 100.0 80.0 60.0 40.0 20.0 0.0
Year
Indices
Fitted
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Adaptive Response Rate Exponential Smoothing (ARRES) The change could either be permanent or it may effect temporarily and the data movements revert to its normal self after a certain period. In these situations, to maintain the same value for alpha for all time periods may not be a realistic decision. Thus, the ARRES technique was developed.
For the one-step-ahed forecast;

F t +1 = t y t + (1 t ) F t
t =
Et AE t
where,
0< <1
et = y t F t
Et = et + (1 ) E t 1
AEt = et + (1 ) AEt 1
The value of error.

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Et
is defined as the smoothed

AEt is the smoothed absolute
average error, and
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Fitting the ARRES model using Excel

Row No. 1 A B C D E F G
In the application of the ARRES model one does not require to find for the best alpha, . This Thi is i because b th there i no single is i l best b t value l which happens to vary over time. For this reason the appropriate symbol used is
yt
yt
1960 1961 1962 1963 1964 1965 1966 1967 31.3 31.3 31.3 32.2 32.1 32.9 33.4 34.8 7/19/2010
t
31.3 =G2*B2+(1G2)*C2 =G3*B3+(1G3)*C3 G3) C3 =G4*B4+(1G4)*C4 =G5*B5+(1G5)*C5 =G6*B6+(1G6)*C6 -
et
0 =B3-C3 =B4-C4 =B5-C5 =B6-C6 =B7-C7 -
Et
0 =0.2*D3+(0. 8)*E2 =0.2*D4+(0. 8)*E3 8) E3 =0.2*D5+(0. 8)*E4 =0.2*D6+(0. 8)*E5 =0.2*D7+(0. 8)*E6 NURUL NISA' KHAIROL AZMI
AE t
0 =0.2*ABS(D3) +(0.8)*F2 =0.2*ABS(D4) +(0 8)*F3 +(0.8) F3 =0.2*ABS(D5) +(0.8)*F4 =0.2*ABS(D6) +(0.8)*F5 =0.2*ABS(D7) +(0.8)*F6 -
Ft
0.2 0.2 0.2 =ABS(E5/F5) =ABS(E6/F6) =ABS(E7/F7) 80
2 3 4 5 6 7 8 9 -
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The Fitted Values Using Adaptive Response Rate Exponential Smoothing (ARRES)
The Fitted Values Using Adaptive Response Rate Exponential Smoothing
Year 1960 1961

yt
yt
yt
31.3 31.3 31 3 31.3 103.4 107.0 109.9
Ft
31 31 31 100.0 103.0 107.0 110.0
et
0.0 0.0 00 0.0 3.4 3.6 2.9
Et
0.00 0.00 0 00 0.00 3.09 3.19 3.13
AE t
0.00 0.00 0 00 0.00 3.09 3.19 3.13
t
0.200 0.200 0 200 0.200 1.000 1.000 1.000
120.0 Indi ices 100.0 80.0 60 0 60.0 40.0 20.0 0.0
1962 1995 1996 1997 1998 (Forecast)
19 60
19 64 19 68
19 72 19 76
19 80 19 84
19 88
Year
Indices
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19 92 19 96
Fitted
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Holt-Winters Trend and Seasonality When seasonality exists, then the Holt-Winters Trend and Seasonality is most suitable. Two assumptions can be made with regard to the relationship of these components; i. the multiplicative effect and ii. the additive effect. Consist of three basic component: i. Level ii. Trend iii. Seasonality
Multiplicative Effect Assumption

Level component:
Lt = yt + (1 )( Lt 1 + bt 1 ) S t s
Trend component: bt = ( Lt Lt 1 ) + (1 )bt 1 Seasonality y component: p

St = yt + (1 ) S t s Lt
The m-step-ahead forecast is calculated as:
Ft + m = ( Lt + bt m) S t s + m
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where,
Lt
yt
- the level component of the series, comprising of the smoothed values but does not include the seasonality component, - the actual values which include seasonality, - the smoothing constant for level (0<
bt- the estimate of the trend component,

S t- the estimate of the seasonality component, Lt - the length of seasonality,
<1)
<1)
s trend estimate (0< - the smoothing constant for the
- the smoothing constant for seasonality estimate (0<
< 1)
m
Ft + m
- the number of step-ahead to be forecast, - forecast for m-step-ahead.
- the length of seasonality (e.g. number of quarters or months in a year which are 4 and 12, respectively),
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Determining the Initial Values Let us set priori the values of = 0.7 = 0.2 and
= 0.0 . To determine the initial value for
The initial values for the first component of the trend, , is calculated as the mean of the trend over one season, i.e.
L0
a simple procedure used is to take the average of the first 4 quarters;

L0 = y1 + y 2 + y 3 + y 4 4
=237,827
1 y y y y y y y y b0 = ( s+1 1 + s+2 2 + s+3 3 + s+4 4 ) s s s s s

where s=4 (represents the number of seasons)
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Hence,
b4 =
1 211310 211327 233831 248520 ( + + 4 4 4 248664 259806 218128 231654 ) + 4 4
S1 =
y1 211,327 = = 0.89 L0 237,827

y2 248,520 = = 1.04 L0 237,827
y 3 259,806 = = 1.09 L0 237,827
y4 231,654 = = 0.97 L0 237,827
S2 =
= -2460.87
.
The initial values of the seasonal components of the first 4 quarters are calculated by using the ratio of the actual values to the mean of the first 4 values as represented by L , in which,
0
S3 =
S4 =
7/19/2010
90
15
7/19/2010
THE END THANK U FOR LISTENING
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91
16

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UNIVARIATE MODELLING TECHNIQUES

NURUL NISA' KHAIROL AZMI

1 0.5 0 t-4 t-3 t-2 t-1

Figure 5.1: Forecasting scenario

Forecast point of origin

POPULAR ERROR MEASURES

MEAN SQUARE ERROR

MEAN ABSOLUTE PERCENTAGE ERROR(MAPE)

General Classifications of Single Variable Models

where n effective data points

/ y t ) 100 absolute percentage error

Exponential Smoothing Techniques

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

Naive with trend model

Naive with trend model

109.9 = 109 .9 107.0 = 112 .9

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

80.0 60.0 40.0 20.0 0.0

Average/Mean forecast Ft +m = y where Ft +m is the forecast for m-step-ahead made at period t,

where n is the number of observations in the time series.

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

Average change model

60.0 40.0 20.0 0.0

where Average of Changes = ( y t y t 1 ) + ( y t 1 y t 2 ) 2

NURUL NISA' KHAIROL AZMI

Average change model

Average change model

120.0 100.0 80.0

60.0 40.0 20.0 0.0

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

Average percent change model

Ft +m = y t + Average of Percent Changes

Year 1960 1961 1962 1963 1964 -

Indices 31.3 31.3 31.3 32.2 32.1 -

Fitted =B4+((((B4-B3)/B3)+((B3B2)/B2))/2)*B4 =B5+((((B5-B4)/B4)+((B4B3)/B3))/2)*B5 -

NURUL NISA' KHAIROL AZMI

40.0 20.0 0.0

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

Exponential Smoothing Techniques

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

Exponential Smoothing Techniques

Exponential Smoothing Techniques

NURUL NISA' KHAIROL AZMI

Single Exponential Smoothing

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

Determining the Best Value of

Two ways the value of i. subjectively, or ii. objectively

NURUL NISA' KHAIROL AZMI

Determining the Best Value of

NURUL NISA' KHAIROL AZMI

NURUL NISA' KHAIROL AZMI

Fitting the Single Exponential Model

points of time) is minimised, where

is the most recent observation. Now, putting

Fitted =B4+((((B4-B3)/B3)+((B3B2)/B2))/2)B4 =B5+((((B5-B4)/B4)+((B4B3)/B3))/2)B5 -

=(0.9B2)+(0 .1C2) =(0.9B3)+(0 .1C3) =(0.9B4)+(0 .1C4) =(0.9B5)+(0 .1C5) . .