Time Series:

A set of data depending on time is called a time series

OR

Time series is an arrangement of Statistical data in a chronological order i.e. in accordance with

occurrence of time.

Most of the series relating to economics, business and commerce are the examples of time series.
e.g.

the series related to prices,

production and consumption of various commodities,

agricultural and industrial production,

national income and foreign exchange,

profit of business houses, bank deposits,

prices and dividend of shares,

shares in stock markets etc. are all time series spread over a long period of time.

Mathematically a time series is defined by the functional relationship y = f (t) where y is the value of
the phenomena or variable under consideration at a time t.

e.g. (i) The population (y) of a country or a place in different year t

(ii) No. of births or death (y) in different months t of a year

(iii) the sale (y) of a departmental store in different months t of the year

(iv) The temperature (y) of a place in different dayst has etc. constitute the time series.

Thus if the value of a phenomena or variable at time t1, t2… tn are Y1, Y2,…, Yn respectively then

t : t1 t2 ………………. tn

Y : y1 y2 ………………. yn

Utility/Importance/Purpose of Time-series
(a) It helps in understanding the past behavior of time-series

(b) It helps in understanding the present situation

(c) It helps in predicting the future values of the series

(d) It is helpful for comparison

(e) The study of time-series is useful to government for planning and framing suitable policies for

future.

Que: What do you mean by Time Series analysis?

Time series analysis is a device through which an effort is made to isolate (separate out) the various

components (factors or forces) which influence the time series variable in the series of data and

measure, if possible.

For example, the price of any commodity (rice) depends upon many factors like demand, supply,
rainfall, the price of substitute items, political changes etc. All these factors influence the price of rice
in their own way, and hence the change in the price of rice is influenced by the totality of all these
factors. If all these factors or components can be separate out from one another, then it may be
possible to know the effect of each component on the price and they may help us in predicting the
future values of the series.

Components of Time series:

The various components of time series are:

(i) Trend or Secular trend or long term variation (T)

(ii) Seasonal variation (S)

(iii) Cyclic variation (C)

(iv) Irregular or Random variation (I)

(i) Trend or Secular trend or long term variation (T)

Changes that have occurred as a result of general tendency of the data to increase or decrease,
known as trend or secular trend.

(ii) Seasonal variation (S)

Changes that have taken place during a period of 12 months as a result of change in climate, weather

conditions, festivals etc. Such changes are called seasonal variations.

(iii) Cyclic variation (C)

Changes that have taken place as a results of booms (to grow suddenly and rapidly) and depressions.

Such changes are called cyclic variations.

(iv) Irregular or Random variation (I)

Changes that have taken place as a result of forces that could not be predicted like floods,
earthquakes (natural calamities), famines (a severe shortage of food) etc. Such changes are called
irregular or random variations.

Components of Time series:

The four components of time series are:

1. Secular trend

2. Seasonal variation

3. Cyclical variation

4. Irregular variation
Secular trend: A time series data may show upward trend or downward trend for a period of years
and this may be due to factors like increase in population, change in technological progress, large
scale shift in consumer’s demands, etc. For example, population increases over a period of time,
price increases over a period of years, production of goods on the capital market of the country
increases over a period of years. These are the examples of upward trend. The sales of a commodity
may decrease over a period of time because of better products coming to the market. This is an
example of declining trend or downward trend. The increase or decrease in the movements of a time
series is called Secular trend.

Seasonal variation: Seasonal variations are short-term fluctuation in a time series which occur

periodically in a year. This continues to repeat year after year. The major factors that are responsible
for the repetitive pattern of seasonal variations are weather conditions and customs of people. More

woollen clothes are sold in winter than in the season of summer .Regardless of the trend we can
observe that in each year more ice creams are sold in summer and very little in winter season. The
sales in the departmental stores are more during festive seasons that in the normal days.

Cyclical variations: Cyclical variations are recurrent upward or downward movements in a time series
but the period of cycle is greater than a year. Also these variations are not regular as seasonal
variation .There are different types of cycles of varying in length and size. The ups and downs in
business activities are the effects of cyclical variation. A business cycle showing these oscillatory
movements has to passthrough four phases-prosperity, recession, depression and recovery. In a
business, these four phases are completed by passing one to another in this order.

Irregular variation: Irregular variations are fluctuations in time series that are short in duration,
erratic in nature and follow no regularity in the occurrence pattern. These variations are also referred
to as residual variations since by definition they represent what is left out in a time series after trend,
cyclical and seasonal variations. Irregular fluctuations results due to the occurrence of unforeseen
events like floods, earthquakes, wars, famines, etc.

Which components of a time series would you mainly associate each of the following? Why?

1. A decline in ice-cream sales during November to February-----

2. Fall in death rate due to advances in Science -----

3. A strike in a factory delaying production for 10 days -----

4. A fire in a factory delaying production for three weeks -----

5. Inflation -----

6. An increase in employment during harvest time ----

7. Rainfall in Delhi that occurred for a week in Dec-1979 -----

8. A decrease in price during harvest time -----

9. Recession -----
Which components of a time series would you mainly associate each of the following? Why?

1. A decline in ice-cream sales during November to February-----Seasonal

2. Fall in death rate due to advances in Science -----Trend

3. A strike in a factory delaying production for 10 days -----Irregular

4. A fire in a factory delaying production for three weeks -----irregular

5. Inflation -----Cyclic ( Inflation means a rise in prices)

6. An increase in employment during harvest time ----Seasonal

7. Rainfall in Delhi that occurred for a week in Dec-1979 -----Irregular

8. A decrease in price during harvest time -----Seasonal

9. Recession -----Cyclic ( Recession means a period during which trade and industrial activity in a

country are reduced)