Yahoo! share in Q2 2011

In January 2011, we wrote about YHOO share in 2011 Q1:

Currently, the predicted price shows no tendency to rise. All in all, one should not expect the YHOO price to grow fast.

This prediction was right and YHOO shares stalled in Q1. Here we update the underling model and give a forecast for 2011Q2.

Since the last revision in January 2011, the model for Yahoo! (YHOO) had no significant changes and still is a slightly weird example of the deterministic character of share price evolution.  The YHOO model is stable over the past year and a half and is defined by somewhat unexpected indices: the consumer price index of meat, poultry, fish and eggs (MEAT) and the index of motor vehicle parts and equipment (MVP). Both defining indices seem to have no visible relation to the internet services. On the other hand these CPIs are the most basic ones and are in the root of any economic activity.

In the new model, the MEAT index leads the share price by 5 months (6 months in January) and the MVP has no lead (1 month in January). Figure 1 depicts the overall evolution of both involved indices. These two defining components provide the best fit model between June 2010 and March 2011.  The MEAT coefficient is positive and thus the increasing price of meats, poultry, fish and eggs causes the share price to grow at a slow pace. The MVP index has a negative coefficient and causes the share to fall. The slope of time trend is positive revealing the price tendency to increase over time. The best-fit 2-C model for YHOO(t) is as follows:

YHOO(t) =  0.49MEAT(t-5) – 3.25MVP(t-0)  + 10.66(t-1990) + 145.61

where YHOO(t) is the price of a share in US dollars, t is calendar time.

The predicted and observed curves are presented in Figure 2. The residual error is of $2.56 for the period between June 2003 and March 2011 (see Figure 3). In the second quarter of 2011, the price of food will likely be growing and the MVP has a tendency to fall. This may introduce a positive force into the share and it will be growing through the quarter.

Figure 1. Evolution of the price of MEAT and MVP.

Figure 2. Observed and predicted YHOO share prices.

Figure 3. The model residual. Currently, the price is underestimated.

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