Wal-Mart share in 2011

Here we present a pricing model for Wal-Mart Stores (WMT), as based on the decomposition of a share price into a sum of two selected consumer price indices. This is a new model defined by the index of hospital and related services (HOSP) and the price index of miscellaneous personal services (MISS), as reported by the US BLS. The former CPI component leads the share price by 10 months and the latter one evolves in sync with the price. Figure 1 depicts the overall evolution of both involved indices. These two defining components provide the best fit model between June 2010 and December 2010. Relevant coefficients are both positive. Therefore the growth in both indices causes the share price to increase. The slope of time trend is negative. The best-fit 2-C model for WMT(t) is as follows:

WMT(t) = 0.50*HOSP(t-10) + 1.42*MISS(t) - 28.39(t-2000) – 158.12

where t is calendar time. The predicted curve in Figure 2 evolves in sync with the observed price. The residual error is $1.99 for the period between June 2003 and December 2010, as Figure 3 presents. Since both defining components are on a steady rise one can expect the WMT price to grow in 2011.

Figure 1. Evolution of the price of HOSP and MISS.

Figure 2. Observed and predicted WMT share prices.

Figure 3. Residual error of the model.

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