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Confidence intervals in stationary autocorrelated time series

Halkos, George and Kevork, Ilias (2002): Confidence intervals in stationary autocorrelated time series.

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In this study we examine in covariance stationary time series the consequences of constructing confidence intervals for the population mean using the classical methodology based on the hypothesis of independence. As criteria we use the actual probability the confidence interval of the classical methodology to include the population mean (actual confidence level), and the ratio of the sampling error of the classical methodology over the corresponding actual one leading to equality between actual and nominal confidence levels. These criteria are computed analytically under different sample sizes, and for different autocorrelation structures. For the AR(1) case, we find significant differentiation in the values taken by the two criteria depending upon the structure and the degree of autocorrelation. In the case of MA(1), and especially for positive autocorrelation, we always find actual confidence levels lower than the corresponding nominal ones, while this differentiation between these two levels is much lower compared to the case of AR(1).

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