Seasonal Variations: Estimation

We have to find out a way of isolating and measuring the seasonal variations. There are two reasons for isolating and measuring the effect of seasonal variation.

  • To study the changes brought by seasons in the values of the given variable in a time series
  • To remove it from the time series to determine the value of the variable

Summing the values of a particular season for a number of years, the irregular variations will cancel each other, due to independent random disturbances. If we also eliminate the effect of trend and cyclical variations, the seasonal variations will be left out which are expressed as a percentage of their average.

A study of seasonal variation leads to more realistic planning of production and purchases etc.

Seasonal Index

When the effect of the trend has been eliminated, we can calculate a measure of seasonal variation known as the seasonal index. A seasonal index is simply an average of the monthly or quarterly value of different years expressed as a percentage of averages of all the monthly or quarterly values of the year.

The following methods are used to estimate seasonal variations.

  • Average percentage method (simple average method)
  • Link relative method
  • Ratio to the trend of short time values
  • Ratio to the trend of long time averages projected to short times
  • Ratio to moving average

The Simple Average Method

Assume the series is expressed as

$$Y=TSCI$$

Considering the long time averages as trend values and eliminate the trend element by expressing a short time observed value as a percentage of the corresponding long time average. In the multiplicative model, we obtain

\begin{align*}
\frac{\text{short time observed value} }{\text{long time average}}\times &= \frac{TSCI}{T}\times 100\\
&=SCI\times 100
\end{align*}

This percentage of long time average represents the seasonal (S), the cyclical (C) and the irregular (I) component.

Once $SCI$ obtained, we try to remove $CI$ as much as possible from $SCI$. This is done by arranging these percentages season-wise for all the long times (say years) and taking the modified arithmetic mean for each season by ignoring both the smallest and the largest percentages. These would be seasonal indices.

If the average of these indices is not 100, then the adjustment can be made, by expressing these seasonal indices as the percentage of their arithmetic mean. The adjustment factor would be

\begin{align*}
\frac{100}{\text{Mean of Seasonal Indiex}} \rightarrow \frac{400}{\text{sums of quarterly index}} \,\, \text{ or } \frac{1200}{\text{sums of monthly indices}}
\end{align*}

Question: The following data is about number of automobile sold.

YearQuarter 1Quarter 2Quarter 3Quarter 4
1981250278315288
1982247265301285
1983261285353373
1984300325370343
1985281317381374

Calculate the seasonal indices by the average percentage method.

Solution:

First, we obtain the yearly (long term) averages

Year19811982198319841985
Year Total11311098127213381353
Yearly Average1131/4=282.75274.50318.00334.50338.25

Next, we divide each quarterly value by the corresponding yearly average and express the results as percentages. That is,

YearQuarter 1Quarter 2Quarter 3Quarter 4 
1981$\frac{250}{282.75}\times=88.42$$\frac{278}{282.75}\times=98.32^*$$\frac{315}{282.75}\times=111.41$$\frac{288}{282.75}\times=101.86^*$ 
1982$\frac{247}{274.50}\times=89.98^*$$\frac{265}{274.50}\times=96.54$$\frac{301}{274.50}\times=109.65^*$$\frac{285}{274.50}\times=103.83$ 
1983$\frac{261}{318.00}\times=82.08^*$$\frac{285}{318.00}\times=89.62^*$$\frac{353}{318.00}\times=111.01$$\frac{373}{318.00}\times=117.30^*$ 
1984$\frac{300}{334.50}\times=89.69$$\frac{325}{334.50}\times=97.16$$\frac{370}{334.50}\times=110.61$$\frac{343}{334.50}\times=102.54$ 
1985$\frac{281}{338.25}\times=83.07$$\frac{317}{338.25}\times=93.72$$\frac{381}{338.25}\times=112.64^*$$\frac{374}{338.25}\times=110.57$ 
Total (modfied)
261.18247.42333.03316.94Total
Mean (modified)
$\frac{261.18}{3}=87.06$$\frac{247.42}{3}=95.81$$\frac{333.03}{3}=111.01$$\frac{316.94}{3}=105.65$399.52

* on values represents smallest and largest values in a quarter that are not included in the total.

Read about Component of Time Series

Muhammad Imdad Ullah

Currently working as Assistant Professor of Statistics in Ghazi University, Dera Ghazi Khan. Completed my Ph.D. in Statistics from the Department of Statistics, Bahauddin Zakariya University, Multan, Pakistan. l like Applied Statistics, Mathematics, and Statistical Computing. Statistical and Mathematical software used is SAS, STATA, GRETL, EVIEWS, R, SPSS, VBA in MS-Excel. Like to use type-setting LaTeX for composing Articles, thesis, etc.

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