It’s time to revisit our stock price model for Aflac Incorporated (AFL). This is a financial company in the S&P 500 list. We predicted the price using the CPI estimates published by the BLS on April 14, 2011. It was a preliminary model. The share price was defined by the consumer price index of household furnishing and operations (HFO) and that transportation services (TS). The defining time lags are as follows: the HFO index leads the share price by 2 months and the TS by 4 months. The best-fit 2-C model for AFL(t) was as follows:
AFL(t) = -5.02HFO(t-2) – 2.87TS(t-6) + 20.42(t-1990) + 997.71
where AFL(t) is the AFL share price in U.S. dollars, t is calendar time.
In April 2011, we predicted that “During the second quarter of 2001, the share price has to decrease to the level of $50.” In May 2011, the monthly closing price was $47.49 and fell to $46.68 in June. Our prediction was correct considering the ambiguity of the monthly closing price as the best measure of stock prices. Figure 1 depicts the high and low monthly prices for an AFL share together with the predicted and measured monthly closing prices (adjusted for dividends and splits). As a rule, the predicted prices is well within the bounds of the share price uncertainty and leads by two months.
We will model the evolution of the AFL price in Q3 2011 when the CPI components of the model are published by BLS.
Figure 1. Observed and predicted AFL share prices.