Modeled share price of Franklin Resources (BEN) forecasts a fall

The price model for Franklin Resources (BEN) is a brand new one.  BEN is a financial company and was analyzed previously as a candidate for a bankruptcy [1]. The obtained model is based on is our stock pricing concept and includes the consumer price index of food at home (FH) and the index of tobacco and tobacco products (TOB). The former defining CPI component led the share price by 5 months and the latter one by 8 months. Therefore, the model has a natural 5-month forecast horizon. Figure 1 depicts the overall evolution of the involved indices. These two defining CPI components provide the best fit model between March 2011 and July 2010.  Both coefficients are negative, as in many models already reported in this blog, and thus the increasing prices result in decreasing share price. The slope of time trend is positive and would provide a $55 increment per year if both CPIs are fixed. The best-fit 2-C model for BEN(t) is as follows:
BEN(t) = -6.33FH(t-5) – 0.27TOB(t-8) – 55.08(t-1990) + 547.67     
where t is calendar time.  The standard deviation of $7.21 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 $100 from the current $125, as follows from the predicted and observed curves presented in Figure 2.  Figure 3 displays the model error which was low after 2008.

Figure 1. The evolution of FH and TOB.
Figure 2. Observed and predicted BEN share prices.
Figure 3. The model residual, i.e. the difference between the observed and predicted BEN 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

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