Calculation of Half life for Time Series

Installations & Python Packages
1

Hi 

Can you pl provide help with calculation of halflife for a time series using Python. 



Thanks

 

2

The calculation of half-life is covered in the section 4 unit 4 (Compute Half-life of GLD-GDX) of Mean Reversion Strategies in Python. 



Please go through and let us know if you have any doubt in that. 

3

Hi Vibhu



The said calculation is specific for Johansen Test. I am looking for calculation of half life for any gereric Time series.

Thanks

4

Hi Aparna,



The half-life, defined as the number of periods required for the signal to dissipate by half. Having said that, it is difficult to find a half-life for discrete time-series data such as financial data.

To overcome this problem we use the Ornstein–Uhlenbeck process to make a discrete-time series analogous to a continuous one and find it's half-life.



If we are interested in finding the half-life of any time series, you may use ACF and PACF(Resource) tests to find out what is the order of your AR and MA. Once the ARMA orders are known, you may proceed to find the time series from derivation as shown in these two sources below.

Resource 1

Resource 2



Please do note that when we deal with financial data, we do not generally study them as higher-order ARMA series unless for purposes of deep quantitative research.There is no hard and fast rule that we always have to use AR(1), but,  Retail use mostly pertains to AR(1) order and hence the Ornstein–Uhlenbeck process is used to find the half-life where we see an AR(1) series.



Hope this helps!

5

Thanks, Gaurav.