The Autoregressive Moving

Average Model

Bluc Drago - Alexandru

Economic data

Numerical time-series are usually represented

as time data, (sets of data) for part or all of a
single economy or the international economy.
International statistics are produced by several
international bodies and firms, including the
International Monetary Fund and the Bank for
International Settlements.
Many other ways can be utilized to analyse the
flux of data. These include, e.g., time-series
analysis using multiple regression, Box-Jenkins
analysis, seasonality analysis

Economic data issues

Proper economic data is a stipulation to
effective macroeconomic administration
The public possibility of reliable and up-todate economic data also reassures
international investors by allowing them to
monitor economic developments and to
manage their investment risk

Tools and models to analyze financial data

When we are talking about signal

processing techniques we must speak about
Black-Scholes model for price evolution
The most commong bleeps in finance are
prices

Tools and models to analyze financial data

S(0) is the price at a specific time t=0

W is the random walk, namely a continuous

function whose increments

Empirical mode
decomposition
In order to perform a stock prediction we will make
use of neural networks in order to use
openings / closings / etc. and then we will perform
a prediction based on that
The Black-Scholes model reflects the price
fluctuation of a stock when it comes to trend plus
a fluctuation
In real data sets, this fluctuation components are
observed scaling over different time scales: coarse
time scales reflect periodicities meaningful to
analysis and prediction, while fine time scales
reflect noise

Empirical mode
decomposition
Reiterations are usually being spoted by
using Fourier transformations
Unfortunetly, using Fourier, comes with 2
major disadvantages:

one is not being able to deal with the

nonstationarity introduced by the presence of the
trend
one choses its dilatation function that is close to a
sine will be expanded into an infinite series.

Modeling financial time series

Time series analysis is an integral part of
financial analysis
Modeling is the creation of representations
of reality
A key element of financial planning and
financial forecasting is the ability to
construct models showing the
interrelatedness of financial data

Modeling financial time

series
The use of regression analysis is widespread
in examining financial time series
A model that has been useful for this type
of application is called the GARCH-M
model, which incorporates computation of
the mean into the GARCH model
One application of this model is the analysis
of stock returns and volatility

Modeling financial time

series

General regression models assume that the

dependent variable is a function of past values
of itself and past and present values of the
independent variable.
To perform the tests requires utilization of the
Dynamic Structural Equation Model (DSEM)
and the Vector Autoregressive Process (VAR)
Results of this testing are useful in
determination of whether an independent
variable is strictly exogenous or is
predetermined

The Autoregressive Moving Average Model

The ARMA models provide a parsimonious

description of a stationary stochastic
process in the statistical analysis of time
series when it comes to 2 polynomials.
These two polynomials are one for the
moving average and the other for the autoregression.
The AR(p) model is written:

The Autoregressive Moving

Average Model

The notation MA(q) refers to the moving

average model of order q:

Taking the AR model and the MA model, we

get the ARMA model.