A high-order smoothing technique used with time series that exhibit substantial randomness.

Henderson moving averages are filters which were derived by Robert Henderson in 1916 for use in actuarial applications. They are trend filters, commonly used in time series analysis to smooth seasonally adjusted estimates in order to generate a trend estimate. They are used in preference to simpler moving averages because they can reproduce polynomials of up to degree 3, thereby capturing trend turning points.

The ABS uses Henderson moving averages to produce trend estimates from a seasonally adjusted series. The trend estimates published by the ABS are typically derived using a 13 term Henderson filter for monthly series, and a 7 term Henderson filter for quarterly series.

Henderson filters can be either symmetric or asymmetric. Symmetric moving averages can be applied at points which are sufficiently far away from the ends of a time series. In this case, the smoothed value for a given point in the time series is calculated from an equal number of values on either side of the data point.

To obtain the weights, a compromise is struck between the two characteristics generally expected of a trend series. These are that the trend should be able to represent a wide range of curvatures and that it should also be as smooth as possible.

In general, the longer the trend filter, the smoother the resulting trend, as is evident from a comparison of the gain functions above. A 5 term Henderson reduces cycles of about 2.4 periods or less by at least 80%, while a 23 term Henderson reduces cycles of about 8 periods or less by at least 90%. In fact a 23 term Henderson filter completely removes cycles of less than 4 periods.

Henderson moving averages also dampen the seasonal cycles to varying degrees. However the gain functions in Figures 4-8 show that annual cycles in monthly and quarterly series are not dampened significantly enough to justify applying a Henderson filter directly to original estimates. This is why they are only applied to a seasonally adjusted series, where the calendar related effects have already been removed with specifically designed filters.