Autoregressive–moving-average model - Wikipedia https://en.wikipedia.

org/wiki/Autoregressive–moving-average_model

Autoregressive–moving-average model
In the statistical analysis of time series, autoregressive–moving-average (ARMA) models
provide a parsimonious description of a (weakly) stationary stochastic process in terms of two
polynomials, one for the autoregression (AR) and the second for the moving average (MA). The
general ARMA model was described in the 1951 thesis of Peter Whittle, Hypothesis testing in time
series analysis, and it was popularized in the 1970 book by George E. P. Box and Gwilym Jenkins.

Given a time series of data Xt , the ARMA model is a tool for understanding and, perhaps, predicting
future values in this series. The AR part involves regressing the variable on its own lagged (i.e., past)
values. The MA part involves modeling the error term as a linear combination of error terms
occurring contemporaneously and at various times in the past. The model is usually referred to as the
ARMA(p,q) model where p is the order of the AR part and q is the order of the MA part (as defined
below).

ARMA models can be estimated by using the Box–Jenkins method.

Contents
Autoregressive model
Moving-average model
ARMA model
Note about the error terms
Specification in terms of lag operator
Alternative notation
Fitting models
Choosing p and q
Estimating coefficients
Implementations in statistics packages
Applications
Generalizations
Autoregressive–moving-average model with exogenous inputs model (ARMAX model)
See also
References
Further reading

Autoregressive model
The notation AR(p) refers to the autoregressive model of order p. The AR(p) model is written

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where are parameters, is a constant, and the random variable is white noise.

Some constraints are necessary on the values of the parameters so that the model remains stationary.
For example, processes in the AR(1) model with are not stationary.

Moving-average model
The notation MA(q) refers to the moving average model of order q:

where the θ1, ..., θq are the parameters of the model, μ is the expectation of (often assumed to
equal 0), and the , ,... are again, white noise error terms.

ARMA model
The notation ARMA(p, q) refers to the model with p autoregressive terms and q moving-average
terms. This model contains the AR(p) and MA(q) models,

The general ARMA model was described in the 1951 thesis of Peter Whittle, who used mathematical
analysis (Laurent series and Fourier analysis) and statistical inference.[1][2] ARMA models were
popularized by a 1970 book by George E. P. Box and Jenkins, who expounded an iterative (Box–
Jenkins) method for choosing and estimating them. This method was useful for low-order
polynomials (of degree three or less).[3]

The ARMA model is essentially an infinite impulse response filter applied to white noise, with some
additional interpretation placed on it.

Note about the error terms

The error terms are generally assumed to be independent identically distributed random variables
(i.i.d.) sampled from a normal distribution with zero mean: ~ N(0,σ2) where σ2 is the variance.
These assumptions may be weakened but doing so will change the properties of the model. In
particular, a change to the i.i.d. assumption would make a rather fundamental difference.

Specification in terms of lag operator

In some texts the models will be specified in terms of the lag operator L. In these terms then the

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AR(p) model is given by

where represents the polynomial

The MA(q) model is given by

where θ represents the polynomial

Finally, the combined ARMA(p, q) model is given by

or more concisely,

or

Alternative notation

Some authors, including Box, Jenkins & Reinsel use a different convention for the autoregression
coefficients.[4] This allows all the polynomials involving the lag operator to appear in a similar form
throughout. Thus the ARMA model would be written as

Moreover, starting summations from and setting and , then we get an even

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more elegant formulation:

Fitting models

Choosing p and q

Finding appropriate values of p and q in the ARMA(p,q) model can be facilitated by plotting the
partial autocorrelation functions for an estimate of p, and likewise using the autocorrelation functions
for an estimate of q. Extended autocorrelation functions (EACF) can be used to simultaneously
determine p and q.[5] Further information can be gleaned by considering the same functions for the
residuals of a model fitted with an initial selection of p and q.

Brockwell & Davis recommend using Akaike information criterion (AIC) for finding p and q.[6]
Another possible choice for order determining is the BIC criterion.

Estimating coefficients

ARMA models in general can be, after choosing p and q, fitted by least squares regression to find the
values of the parameters which minimize the error term. It is generally considered good practice to
find the smallest values of p and q which provide an acceptable fit to the data. For a pure AR model
the Yule-Walker equations may be used to provide a fit.

Implementations in statistics packages

In R, the arima function (in standard package stats) is documented in ARIMA Modelling of Time
Series (http://search.r-project.org/R/library/stats/html/arima.html). Extension packages contain
related and extended functionality, e.g., the tseries package includes an arma function,
documented in "Fit ARMA Models to Time Series" (http://finzi.psych.upenn.edu/R/library/tseries/ht
ml/arma.html); the fracdiff package (https://cran.r-project.org/web/packages/fracdiff) contains
fracdiff() for fractionally integrated ARMA processes; and the forecast package (https://cran.r-proj
ect.org/web/packages/forecast/index.html) includes auto.arima for selecting a parsimonious set of
p,q. The CRAN task view on Time Series (https://cran.r-project.org/web/views/TimeSeries.html)
contains links to most of these.
Mathematica has a complete library of time series functions including ARMA.[7]
MATLAB includes functions such as arma (http://www.mathworks.com/help/econ/arma-model.htm
l) and ar (http://www.mathworks.com/help/ident/ref/ar.html) to estimate AR, ARX (autoregressive
exogenous), and ARMAX models. See System Identification Toolbox (http://www.mathworks.com/
help/ident/ug/estimating-ar-and-arma-models.html) and Econometrics Toolbox (http://www.mathw
orks.com/help/econ/arima.estimate.html) for more information.
Julia has some community driven packages that implement fitting with an ARMA model such as
arma.jl (https://github.com/joefowler/ARMA.jl).
Statsmodels Python module includes many models and functions for time series analysis,
including ARMA. Formerly part of Scikit-learn it is now stand-alone and integrates well with
Pandas. See here for more details (http://statsmodels.sourceforge.net/).

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PyFlux has a Python-based implementation of ARIMAX models, including Bayesian ARIMAX

models.
IMSL Numerical Libraries are libraries of numerical analysis functionality including ARMA and
ARIMA procedures implemented in standard programming languages like C, Java, C# .NET, and
Fortran.
gretl can also estimate ARMA model, see here where it's mentioned (http://constantdream.wordpr
ess.com/2008/03/16/gnu-regression-econometrics-and-time-series-library-gretl/).
GNU Octave can estimate AR models using functions from the extra package octave-forge (http://
octave.sourceforge.net/).
Stata includes the function arima which can estimate ARMA and ARIMA models. See here for
more details (https://www.stata.com/help.cgi?arima.).
SuanShu is a Java library of numerical methods, including comprehensive statistics packages, in
which univariate/multivariate ARMA, ARIMA, ARMAX, etc. models are implemented in an object-
oriented approach. These implementations are documented in "SuanShu, a Java numerical and
statistical library" (http://www.numericalmethod.com/javadoc/suanshu/).
SAS has an econometric package, ETS, that estimates ARIMA models. See here for more details
(https://web.archive.org/web/20110930032431/http://support.sas.com/rnd/app/ets/proc/ets_arima.
html).

Applications
ARMA is appropriate when a system is a function of a series of unobserved shocks (the MA or moving
average part) as well as its own behavior. For example, stock prices may be shocked by fundamental
information as well as exhibiting technical trending and mean-reversion effects due to market
participants.

Generalizations
The dependence of Xt on past values and the error terms εt is assumed to be linear unless specified
otherwise. If the dependence is nonlinear, the model is specifically called a nonlinear moving average
(NMA), nonlinear autoregressive (NAR), or nonlinear autoregressive–moving-average (NARMA)
model.

Autoregressive–moving-average models can be generalized in other ways. See also autoregressive

conditional heteroskedasticity (ARCH) models and autoregressive integrated moving average
(ARIMA) models. If multiple time series are to be fitted then a vector ARIMA (or VARIMA) model
may be fitted. If the time-series in question exhibits long memory then fractional ARIMA (FARIMA,
sometimes called ARFIMA) modelling may be appropriate: see Autoregressive fractionally integrated
moving average. If the data is thought to contain seasonal effects, it may be modeled by a SARIMA
(seasonal ARIMA) or a periodic ARMA model.

Another generalization is the multiscale autoregressive (MAR) model. A MAR model is indexed by
the nodes of a tree, whereas a standard (discrete time) autoregressive model is indexed by integers.

Note that the ARMA model is a univariate model. Extensions for the multivariate case are the vector
autoregression (VAR) and Vector Autoregression Moving-Average (VARMA).

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Autoregressive–moving-average model with exogenous inputs model (ARMAX

model)

The notation ARMAX(p, q, b) refers to the model with p autoregressive terms, q moving average
terms and b exogenous inputs terms. This model contains the AR(p) and MA(q) models and a linear
combination of the last b terms of a known and external time series . It is given by:

where are the parameters of the exogenous input .

Some nonlinear variants of models with exogenous variables have been defined: see for example
Nonlinear autoregressive exogenous model.

Statistical packages implement the ARMAX model through the use of "exogenous" (that is,
independent,) variables. Care must be taken when interpreting the output of those packages, because
the estimated parameters usually (for example, in R[8] and gretl) refer to the regression:

where mt incorporates all exogenous (or independent) variables:

See also
Autoregressive integrated moving average (ARIMA)
Exponential smoothing
Linear predictive coding
Predictive analytics
Infinite impulse response
Finite impulse response

References
1. Hannan, Edward James (1970). Multiple time series. Wiley series in probability and mathematical
statistics. New York: John Wiley and Sons.
2. Whittle, P. (1951). Hypothesis Testing in Time Series Analysis. Almquist and Wicksell. Whittle, P.
(1963). Prediction and Regulation. English Universities Press. ISBN 0-8166-1147-5.
Republished as: Whittle, P. (1983). Prediction and Regulation by Linear Least-Square
Methods. University of Minnesota Press. ISBN 0-8166-1148-3.
3. Hannan & Deistler (1988, p. 227): Hannan, E. J.; Deistler, Manfred (1988). Statistical theory of

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Autoregressive–moving-average model - Wikipedia https://en.wikipedia.org/wiki/Autoregressive–moving-average_model

linear systems. Wiley series in probability and mathematical statistics. New York: John Wiley and
Sons.
4. Box, George; Jenkins, Gwilym M.; Reinsel, Gregory C. (1994). Time Series Analysis: Forecasting
and Control (Third ed.). Prentice-Hall. ISBN 0130607746.
5. Missouri State University. "Model Specification, Time Series Analysis" (http://people.missouristate.
edu/songfengzheng/Teaching/MTH548/Time%20Series-ch06.pdf) (PDF).
6. Brockwell, P. J.; Davis, R. A. (2009). Time Series: Theory and Methods (2nd ed.). New York:
Springer. p. 273. ISBN 9781441903198.
7. Time series features in Mathematica (http://www.wolfram.com/products/applications/timeseries/fe
atures.html) Archived (https://web.archive.org/web/20111124032002/http://www.wolfram.com/prod
ucts/applications/timeseries/features.html) November 24, 2011, at the Wayback Machine
8. ARIMA Modelling of Time Series (http://search.r-project.org/R/library/stats/html/arima.html), R
documentation

Further reading
Mills, Terence C. (1990). Time Series Techniques for Economists (https://archive.org/details/times
eriestechni0000mill). Cambridge University Press. ISBN 0521343399.
Percival, Donald B.; Walden, Andrew T. (1993). Spectral Analysis for Physical Applications.
Cambridge University Press. ISBN 052135532X.
Francq, C.; Zakoïan, J.-M. (2005), "Recent results for linear time series models with non
independent innovations", in Duchesne, P.; Remillard, B. (eds.), Statistical Modeling and Analysis
for Complex Data Problems, Springer, pp. 241–265, CiteSeerX 10.1.1.721.1754 (https://citeseerx.
ist.psu.edu/viewdoc/summary?doi=10.1.1.721.1754).

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