S&P 500 in August 2009

I have found a short paper citing our article on the prediction of S&P 500 returns as an example of " how statistics can be manipulated to show relationships where none exist". I have to admit that these people did not give any effort to read our article before writing own. As a consequence, they misinterpreted the essence and details of our study.

For a quantitative prediction, the best way to proceed is to continue presenting current results, as we have been doing from March 2009. In August 2009, S&P 500 jumped to 1020 from 987 in July 2009, i.e. by 33 points. As in our previous posts, we depict an updated graph for observed and predicted S&P 500 - Figure 1. All in all, our predictions from March 2009 are accurate to the extent of the number of 9-year-olds is uncertain.

Figure 1. Observed (red) and predicted (black) S&P 500. The leg from March 2009 (bottom point of the curve) was also predicted as a straigt line continuing the black portion. Considering the 6-month horizon of the prediction and the time when it was done (near the bottom of S&P 500), so far the prediction is accurate, but likely we have to calibrate it a bit down because the change in the number of 9-year-olds is overestimated for 2008 through 2010. In any case, we expect another nine months of growth. And the level of 1200 to 1300 by the end of 2009.

Figure 2. Observed and predicted 12-month returns of S&P 500. The model linking S&P 500 to the number of 9-year-olds and real GDP is described in our article and previous posts.

We will continue comparing our prediction and actual S&P 500 and presenting update figures.

As to the paper mentioned in the beginning, these people will never be convinced that they do not understand how the economy and financial market work. It is against their interests.

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