The price model for Boston Scientific (BSX) was reported in January 2011, as based on our stock pricing concept . We expected a small rise in the price in 2011Q1. The original model included the consumer price index of housing (H) and the index of durable goods (DUR). The former defining CPI component led the share price by 5 month and the latter one by 3 months. The updated model has the same defining components and time lags. Figure 1 depicts the overall evolution of the involved indices.
These two defining components provide the best fit model between March 2011 and January 2010. Both coefficients are negative, and thus the increasing prices result in decreasing share price. The slope of time trend is negligible. The best-fit 2-C model for BSX(t) is as follows:
BSX(t) = -1.41H(t-5) – 2.85DUR(t-3) – 0.09(t-1990) + 630.92
where t is calendar time. Both models predicted the price at a three month horizon with standard deviation of $1.83 between July 2003 and March 2011. There was no growth during the first quarter of 2011 since no one of the defining indices has demonstarted any big movement. In the second quarter of 2011, the price may drop to the level of $5 from the current $7, as follows from the predicted and observed curves presented in Figure 2.
Figure 1. The evolution of H and DUR.
Figure 2. Observed and predicted BSX share prices. Red curve represents the contemporaneous prediction.
Figure 3. The model residual, i.e. the difference between the observed and predicted BSX share prices.
1. Kitov, I. (2010). Modelling share prices of banks and bankrupts, Theoretical and Practical Research in Economic Fields, ASERS, vol. I(1(1)_Summer) pp. 59-85