Time series Regression : Descriptive Methods :
Time series Regression : Descriptive Methods Jun Choi
Ghiyoung Im AGENDA:
AGENDA Overview
Definition
Examples
Problems andamp; Treatment
Pros andamp; Cons of Time-Series Regression
Application to IS Field
References Slide3:
TIME SERIES A collection of data Xt (t = 1, 2, …, T) with the interval between Xt and Xt+1 being fixed and constant.
Interested in not only the particular values of the observations but in the order in which they appear.
The purpose
Find the particular mechanism to use in forecasting the future.
Put that mechanism to use in forecasting the future. Slide4:
TIME SERIES - A time series is a sequence of observations which are ordered in time (or space). If observations are made on some phenomenon throughout time, it is most sensible to display the data in the order in which they arose, particularly since successive observations will probably be dependent. Time series are best displayed in a scatter plot. The series value X is plotted on the vertical axis and time t on the horizontal axis.
- Time series regression models are specially suitable for evaluating short-term effects of time-varying exposures. In time-series studies, a single population is assessed with reference to its change over the time. Slide5:
A firm’s performance (Y) is related to its IS investment (X1)
and Marketing intensity (X2), for the past 16 years. EX 1 Slide6:
The size of organization (y) is related to the amount of IS investment five years earlier (x) for the past 20 years. EX 2 Slide7:
MULTICOLLINEARITY
One independent variable is excessively linearly correlated with another independent variable
HETEROSCEDASTICY
The error terms don’t have a constant variance
AUTOCORRELATION
Error terms are correlated through time PROBLEMs that may occur in Time Series Slide8:
AUTOCORRELATED ERROR TERMS Autocorrelated error terms is when the error terms are correlated with each other. This is only a consideration when the model is a 'time series' model. There are three treatments for autocorrelated error terms:
finding an important omitted variable
transforming the variables based upon generalized least squares
introducing Time as a variable on the right hand side of the equation Slide9:
The Durbin-Watson Statistic is used to test for the presence of first-order autocorrelation in the residual of a regression equation. The test compares the residual for time period t with the residual from time period t-1 and develops a statistic that measure the significance of the correlation between these successive comparisons. The formula for the statistic is : THE DURBIN-WATSON STATISTIC Slide10:
The statistic is used to test for the presence of both positive and negative correlation in the residuals. The statistic has a range of from 0 to 4, with a midpoint of 2. The Null Hypothesis ( H0 ) is that there is no significant correlation. Slide11:
STRENGTHS
Validate the relationship over time.
(Consistency, Specification, Transformation)
Explain the past and forecast the future.
WEAKNESSES
Time, money, and energy matter
Still ambiguous in context and process PROS andamp; CONS of TIME-SERIES Slide12:
Motivation: Productivity paradox
Firm-level investment in IT and corresponding productivity
Underlying theory: economic theory (Cobb-Douglas andamp; CES production function, Tobin’s q, etc.)
APPLICATION to IS Field Slide13:
CD function:
Q= (IL, L, IK, K)
Q: Output, IL: IT labor, IK: IT capital
CD function:
ln(Q)ij = 1ln(IL)ij + 2ln(L)ij + 3ln(IK)ij+ 4ln(K)ij
: elasticity of each of the input factors
i: individual firm, j: year
* Source: Kudyba ISR2002 APPLICATION Example * Slide14:
APPLICATION Example * IT Capital Regression Results (CD Prod Function) Output (Sales) Slide15:
REFERENCES Ostrom Jr. (1990). Time series regression. Beverly Hills, CA: Sage.
Nelson (1973). Applied Time Series Analysis. San Francisco: Holden-Day.
McCleary andamp; Hay, Jr. (1980). Applied Time Series Analysis for the Social Sciences. Beverly Hills, CA: Sage.
Kudyba (2002). Increasing returns to information technology. ISR.
Hitt andamp; Brynjolfsson (1996). Productivity, business profitability, and consumer surplus: Three different measures of information technology value. MIS Quarterly.
Bharadwaj et al. (1999). Information technology effects on firm performance as measured by Tobin's q. Management Science.