Here we present a share pricing model for Loews Corporation (L) (see a brief description of the concept here). A preliminary model was obtained in September 2009 and covered the period from October 2008. This old model included the index of food without beverages (FB) and the index of transportation service (TS).
The most recent model also uses the monthly closing price as of April 2011 and the CPI estimates published on April 14, 2011. Currently, the defining indices are almost the same: the index of food (F) and the TS index. The F index leads by 5 months and the TS index by 4 months. Figure 1 depicts the evolution of the indices which provide the best fit model, i.e. the lowermost RMS residual error, between December 2009 and March 2011. The models are as follows:
L(t) = -2.03F(t-5) – 2.12TS(t-5) +28.23(t-1990) +448.98
where L(t) is the share price in US dollars, t is calendar time.
Both models are depicted in Figure 2. The predicted curves lead the observed ones by 4 months. The residual error is of $2.46 for the period between July 2003 and March 2011. In the second quarter of 2011, the model foresees a fall to the level of $39 per share.
Figure 1. Evolution of the price indices F and TS.
Figure 2. Observed and predicted L share prices.