Fall Semester 2004

Chapter 11: Time Series.

1. Use the Dow.xls workbook, plot the time series and answer the following question: "How variable are the average Dow values from one month to another?"

2. Why in the process of your analysis might it be useful to transform the values to stabilize the variance? What do you do?

3. What are "lagged values" and what significance do they have in our experiment? What is the autocorrelation function and what's it used for?

4. Describe some typical ACF patterns. Does any one of them applies to the Dow example?

5. What are moving averages? What is simple exponential smoothing? In the Dow example (the section on forecasting to guide decisions) how do you calculate the buy or sell signal for each month? Is exponential smoothing well suited to predicting short-term market activity? Why or why not?

6. Describe the basic idea behind two-parameter exponential smoothing.

7. The example on page 446 starts with the question: "Is beer production seasonal?" What does the chapter do to answer this question and what is the answer?