Flashcards in L6 TS models Deck (43)
What is a strictly stationary process?
A stochastic process whose unconditional probability distribution does not change when shifted in time (see notes)
What is a weakly stationary (ie. covariance stationary) process? What 3 conditions must it satisfy?
A strictly stationary process whereby the covariance can change over time
It must satisfy the following 3 equations:
1) E(yt) = μ for t=1 to infinity
2) E(yt-μ)(yt-μ)=σ^2 (ie. is constant and less than infinite)
3) E(yt1-μ)(yt2-μ)=γ(t2-t1) (covariance) for all t1 and t2
What is γ(s)?
Autocovariance; the covariance between period t and period s
What is the autocorrelation function (/correlogram)?
Plot of τs against s=0,1,2...
ie. shows the autocorrelation between the current period and period 's' as you go further into the past
What is a white noise process?
A process with virtually no discernible structure
What equations define a WNP?
3) γ(t-r) = 0 for all t is not equal to r (σ^2 otherwise)
What will a WNP ACF look like?
It will be 0 at all points apart from a single peak at of 1 (ie. correlation=1)
What does the Box-Piece test test?
It tests the joint hypothesis that all m of the τk correlation coefficients are SIMULTANEOUSLY EQUAL TO ZERO
How is the Q-statistics distributed?
Asymptotically as a chi-squared(m)
What is the condition for stationarity for an AR(p) model?
Condition for stationarity in an AR(p) model is that the roots of 1-Ø1z-Ø2z(2)-...-Øpz(p)=0 all lie outside the unit circle (see notes P1S2)
Notes P1S2 'testing for stationarity of an AR(p) model
What is Wold's decomposition theorem?
Any stationary AR(p) series can be decomposed into the sum of two uncorrelated processes; a purely deterministic part and a purely stochastic part, which will be a MA(infinity)
If an AR model is stationary, what will its ACF (autocorrelation function) do?
Decay exponentially to zero
See and learn
Examples 3i, ii and iii in my notes
See and learn
recursive structure of an AR(1) process (in notes P2S1)
What does the PACF measure? How is it denoted?
Denoted τkk, it measures the correlation between an observation k periods ago, and the current observation, after controlling for observations at intermediate lags (ie. all lags less than k)
When will the PACF=ACF?
At lag 1
What is the PACF useful for?
Telling the difference between an AR process and an ARMA process
In the case of an AR(p) there are direct connections between yt and y(t-s) only for s is less than or equal to p; therefore AFTER lag p, the theoretical PACF will be zero
How can an MA(q) be written and why?
As a AR(infinity) because there are direct connections between yt and all its previous values tf for MA(q) its theoretical PACF will be geometrically declining (see notes)
What is an ARMA model?
ARMA (p,q) is made by combining the AR(p) and MA(q) models
3 conditions an ARMA model satisfies?
E(ut,us)=0 for all t not equal to s
What is the invertibility condition?
The invertibility condition requires the MA(q) part of the model to have roots of θ(z)=0 greater than one (ie. outside the unit circle again)
How will the ACF look for an ARMA model?
It will display combos of behaviour derived from both the AR and MA parts, but for lags beyond q, the ACF will simply be identical to the AR(p) model
How does the ACF look for an AR(p) process? How do you tell the AR order?
Number of spikes in PACF=AR order (p)
How does the PACF look for an MA(q) process? How do you tell the MA order?
Geometrically decaying PACF
Number of spikes in the ACF=MA order (q) (see slides 39-45 for examples)
What are the three steps to building ARMA models via the Box-Jenkins approach?
3) Model diagnostic checking
What is involved in the identification step of the Box-Jenkins method?
Need to determine the order of the model using graphical procedures (note: now are better methods of doing this)
What is involved in the estimation step of the Box-Jenkins method?
Here we estimate the parameters of the model using either least squares of MLE (depending on the model)
What is involved in the model diagnostic checking step of the Box-Jenkins method?
2 methods of doing this: 1) deliberate overfitting and 2) residual diagnostics (learn what this actually means!)