Predicting DeVry's share price. December 2010 revision

The model for DeVry (DV) was introduces in July 2010. Originally, the stock price was defined by the index for the rent of primary residency (RPR-CUUS0000SEHA) and that of pets, pet products and services (PETS-CUUR0000SERB). We have revisited the stock and found that the model has not changed, except the time lag of the second defining CPI has increased from 4 to 5 months. The former CPI (RPR) component again leads the share price by 11 months. All coefficients are essentially as in the original model.

Figure 1 depicts the overall evolution of both involved indices. From our past experience, the larger is the lag the more unreliable is the model. However, both defining components provide the best fit model between November 2009 and December 2010. The positive influence of RPR (+7.10) is compensated by the negative input of all other terms. So, the best-fit 2-C model for DV(t) is as follows:

DV(t) =7 .10RPR(t-11) – 2.43PETS(t-5) – 31.90(t-2000) – 686.06

The predicted curve in Figure 2 leads the observed price by 5 months with the residual error of $3.68 for the period between March 2003 and December 2010. In other words, the price of a DV share is completely defined by the behaviour of the two CPI components.

Comparing the evolution of the observed and predicted prices since the start of modelling (2008) we have found that the model does predict the share price in the past and foresees at a four to five month horizon. One may expect a significant fall in the first quarter of 2011.

Figure 1. Evolution of the price of RPR and PETS.

Figure 2. Observed and predicted DV share prices. A contemporary prediction is shown by red line. Black diamonds present the original line shifted 5 months ahead.

Figure 3. Residual error of the model. Mean residual error is 0 with standard deviation of $3.68. The largest errors were observed in 2007 and 2008.

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