Xilinx share price

This is a funny example. According to our approach discussed in [1], the model for Xilinx (XLNX) is defined by the index of communication (CO-CUUR0000SAE2) and that of information and information processing (INF-CUUR0000SAE21). The former CPI component leads the share price by 11 months and the latter one leads by 4 months. From our past experience, the larger is the lag the more unreliable is the model. These defining components provide the best fit model, i.e. the lowermost RMS residual error, between August 2009 and June 2010. Both coefficients in the XLNX model are positive. This means that the decreasing price of communication and information (see Figure 1) forces the share price down.

So, the best-fit 2-C model for XLNX(t) is as follows:

XLNX(t) = 4.05CO(t-11) + 3.54INF(t-4) +0 .17(t-2000) + 33.25

The predicted curve in Figure 2 leads the observed price by 4 months with the residual error of $1.92 for the period between July 2003 and June 2010. In other words, the price of a XLNX share is completely defined by the behaviour of these two CPI components.

The model accurately predicts the share price in the past and foresees no significant change in the next quarter, in July through September 2010. Considering the overall fall in the S&P 500 in 2010, one should not expect any growth in this stock price at all.

Figure 1. Evolution of the price index of communication (CO) and information (INF).

Figure 2. Observed and predicted XLNX share prices.

Figure 3. Residual error of the model. Mean residual error is 0 with standard deviation of $1.92. The largest errors were observed in 2004 and 2005.

Kitov, I. (2010). Deterministic mechanics of pricing. Saarbrucken, Germany, LAP Lambert Academic Publishing.

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