Modeling share price for Boeing

We have been following the price of Boeing (BA) shares since early 2008. The original crude model included only major price indices, and specifically, the core CPI and the index of transportation. Then we extended the set of modeling indices to 92 and estimated an advanced model [1], which was not published, however. Since the model has been stable and accurate we have decided to present it.

 The model for Boeing has been stable over the past year and is defined by the consumer price index of furniture and bedding (FAB), which is a part of the housing index, and the index of pets, pet products and services (PETS). Both defining CPI components lead the share price by 1 month. Figure 1 depicts the overall evolution of the difference between the involved indices. There is no bigger change in the trend since 2003.

These two defining components provide the best fit model between March 2011 and July 2010.  The FAB coefficient is a positive one, and thus the increasing price of furniture and bedding leads to an increase in the share price one month later. The PETS index has a negative coefficient and causes the share price to fall. The slope of time trend is positive revealing the price tendency to increase over time. The best-fit 2-C model for BA(t) is as follows:

BA(t) =  3.47FAB(t-1)  - 5.96PETS(t-1)  + 42.20(t-1990)  –  298.50

where t is calendar time.

The predicted and observed curves are presented in Figure 2. The residual error is of $4.31 for the period between June 2003 and March 2011. The model provides and an excellent and very stable prediction of the share price in the past.

Figure 1. Evolution of the difference between FAB and PETS.

Figure 2. Observed and predicted BA share prices.

Figure 3. The model residual, i.e. the difference between the observed and predicted BA share prices.

 References

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