random series / white noise. notation wn (white noise) – uncorrelated iid independent and...
TRANSCRIPT
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Random Series / White Noise
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Notation
• WN (white noise) – uncorrelated
• iid independent and identically distributed
• Yt ~ iid N(, ) Random Series
• t ~ iid N(0, ) White Noise
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Data Generation
• Independent observations at every t from
the normal distribution (, )
t
YtYt
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Identification of WN Process
How to determine if data are from WN process?
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Tests of Randomness - 1
• Timeplot of the Data
Check trend
Check heteroscedasticity
Check seasonality
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Generating a Random Series Using Eviews
• Command: nrnd generates a RND N(0, 1)
-3
-2
-1
0
1
2
3
5 10 15 20 25 30 35 40 45 50
WN
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Test of Randomness - 2 Correlogram
Sample: 1 50 Included observations: 50
Autocorrelation Partial Correlation AC PAC Q-Stat Prob
. | . | . | . | 1 -0.042 -0.042 0.0952 0.758 . |*. | . |*. | 2 0.112 0.111 0.7777 0.678 . |** | . |** | 3 0.275 0.288 4.9515 0.175 **| . | **| . | 4 -0.215 -0.218 7.5666 0.109 . | . | . | . | 5 0.036 -0.053 7.6427 0.177 . | . | . | . | 6 0.047 0.033 7.7741 0.255
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Scatterplot and Correlation Coefficient - Review
Y
X
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Autocorrelation Coefficient
• Definition:
The correlation coefficient between Yt and Y(t-k) is called the autocorrelation coefficient at lag k and is denoted as k . By definition, 0 = 1.
• Autocorrelation of a Random Series:
If the series is random, k = 0 for k = 1,...
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Process Correlogram
Lag, k
k
1
-1
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Sample Autocorrelation Coefficient
Sample Autocorrelation at lag k.
ˆ k Yt Y Yt k Y
t1 k
n
Yt Y 2
t 1
n
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Standard Error of the Sample Autocorrelation Coefficient
• Standard Error of the sample autocorrelation
if the Series is Random.
s k = n - k
n n + 2 1
n
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Z- Test of H0: k = 0
ˆk
kzs
Reject H0 if Z < -1.96 or Z > 1.96
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Box-Ljung Q Statistic
• Definition
2
1
1ˆ( ) ( 2)
m
BL kk
Q m n nn k
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Sampling Distribution of QBL(m) | H0
• H0 : 1=2=…k = 0
• QBL(m) | H0 follows a 2 (DF=m) distribution
Reject H0 if QBL > 2(95%tile)
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Test of Normality - 1Graphical Test
• Normal Probability Plot of the Data
Check the shape: straight, convex, S-shaped
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Construction of a Normal Probability Plot
• Alternative estimates of the cumulative relative frequency of an observation
– pi = (i - 0.5)/ n– pi = i / (n+1)– pi = (i - 0.375) / (n+0.25)
• Estimate of the percentile | Normal– Standardized Q(pi) = NORMSINV(pi)– Q(pi) = NORMINV(pi, mean, stand. dev.)
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Non-Normal Populations
Flat Skewed
Expected | Normal
Data
Expected | Normal
Data
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Test of Normality - 2Test Statistics
• Stand. Dev.
• Skewness
• Kurtosis
2
1ˆ
n
tt
Y Y
n
3
1
1ˆn
t
t
Y YS
n
4
1
1 nt
t
Y YK
n
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The Jarque-Bera Test
If the population is normal and the data are random, then:
follows approximately with the # 0f degrees of freedom 2.
Reject H0 if JB > 6
JB = n6
S 2+ 14
K-3 2
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Forecasting Random Series
• Given the data Y1,...,Yn, the one step ahead forecast Y(n+1) is:
or Approx.
Y t-coeff s 1 + 1n
Y z-coeff s
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Forecasting a Random Series
• If it is determined that Yt is RND N(, )
a) The best point forecast of Yt = E(Yt) =
b) A 95% interval forecast of Yt =
( – 1.96 , +1.96 )
for all t (one important long run implication of a stationary series.)
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The Sampling Distribution of the von-Neumann Ratio
The vN Ratio | H0 follows an approximate normal with:
Expected Value of v: E(v) = 2
Standard Error of v: SE (v) = 4 (n - 2)n2 - 1
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Appendix:
The von Neumann Ratio
• Definition:
The non Neumann Ratio of the regression residual is the Durbin - Watson Statistic
2
( 1)2
2( 1)
n
t tt
Y
Y Yv
n s
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