Rolling Analysis of Time Series

Abstract

A rolling analysis of a time series model is often used to assess the model’s stability over time. When analyzing financial time series data using a statistical model, a key assumption is that the parameters of the model are constant over time. However, the economic environment often changes considerably, and it may not be reasonable to assume that a model’s parameters are constant. A common technique to assess the constancy of a model’s parameters is to compute parameter estimates over a rolling window of a fixed size through the sample. If the parameters are truly constant over the entire sample, then the estimates over the rolling windows should not be too different. If the parameters change at some point during the sample, then the rolling estimates should capture this instability.