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Moving Average Method

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48 views

Moving Average Method

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a z
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© © All Rights Reserved
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Moving Average Method

Time Series

Secular Trend

3.Moving Average Method


4. Method Of Least Squares
Moving Averages
 Used for Smoothing
 Series of Arithmetic Means Over Time
 Result Dependent Upon Choice of L
(Length of Period for Computing Means)
 To Smooth Out Cyclical Component, L
Should Be Multiple of the Estimated
Average Length of the Cycle
 For Annual Time Series, L Should Be Odd
Moving Averages (continued)

 Example: 3-Year Moving Average


Y1 + Y2 + Y3
MA(3) =
– First average: 3
Y2 + Y3 + Y4
MA(3) =
– Second average: 3
Moving Average Example
John is a building contractor with a record of a total
of 24 single family homes constructed over a 6-year
period. Provide John with a 3-year moving average
graph. Year Units Moving
Ave
1994 2 NA
1995 5 3
1996 2 3
1997 2 3.67
1998 7 5
1999 6 NA
Moving Average
Example Solution
Year Response Moving
Ave Sales
L=3
1994 2 NA 8
1995 5 3 6
1996 2 3 4
1997 2 3.67 2
1998 7 5 0
94 95 96 97 98 99
1999 6 NA
No MA for the first and last (L-1)/2 years
Exponential Smoothing
 Weighted Moving Average
– Weights decline exponentially
– Most recent observation weighted most
 Used for Smoothing and Short-Term
Forecasting
Exponential Weight: Example
Ei = WYi + (1 − W ) Ei −1
Year Response Smoothing Value Forecast
(W = .2, (1-W)=.8)
1994 2 2 NA
1995 5 (.2)(5) + (.8)(2) = 2.6 2
1996 2 (.2)(2) + (.8)(2.6) = 2.48 2.6
1997 2 (.2)(2) + (.8)(2.48) = 2.384 2.48
1998 7 (.2)(7) + (.8)(2.384) = 3.307 2.384
1999 6 (.2)(6) + (.8)(3.307) = 3.846 3.307
Question No 1
 Calculate the five yearly moving averages of a no of students studying in a
commerce college as shown in by the following figures

Year No of Students
1989 332
1990 317
1991 357
1992 392
1993 402
1994 405
1995 410
1996 427
1997 405
1998 438
Home work 1
 Work out the trend values by centered 4 yearly moving
average method for the following data and plot the given
values and trend values on a graph

Tonnage of
cargo
year Cleared
1987 1102
1988 1250
1989 1180
1990 1340
1991 1212
1992 1317
1993 1452
1994 1549
1995 1586
1996 1476
1997 1614
1998 1586
Question no 3
 For the following Series of observation verify that 4 year centered moving
averages is equivalent to a 5 year weighted moving average with weights
1,2,2,2,1
y ear Annual s ales
1983 2
 ting 1984
1985
6
1
1986 5
1987 3
1988 7
1989 2
1990 6
1991 4
1992 8
1993 3

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