Box Cox Transformation Time Series. F xlambdasign x xlambda - 1lambda. The most standard transformation is the log transformation where the new series y t is given by y t logx t An alternative to the log transformation is the Box-Cox transformation.
It is often desirable to transform a time series to make it stationary. If the variance changes with time the process is nonstationary. In about a fifth of the series considered the BoxCox transformation produces forecasts which are significantly better than the untransformed data at the one-step-ahead horizon.
A useful family of transformations that includes both logarithms and power transformations is the family of Box-Cox transformations Box.
The Box-Cox transformation is a family of power transformations indexed by a parameter lambda. We can take a look at the log-transformed time series plot. Boxcox transforms nonnormally distributed data to a set of data that has approximately normal distribution. 0 Many other transformations are suggestedhere.
