Here we revisit the stock price model for Aflac Incorporated (AFL) which we obtained in April2011 using our concept of share pricing. Accordingly, our goal is to test the original model and to update time lags and coefficients.
Last time we predicted the AFL price using the CPI estimates published by the BLS for March 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 led the share price by 2 months and the TS by 4 months. Adding new data for the period between April and September 2011, we re-estimated the model and found some changes in the time lags: zero and five months, respectively; and in the estimated coefficients. The relevant best-fit 2-C models for AFL(t) are as follows:
AFL(t) = -5.02HFO(t-2) – 2.87TS(t-6) + 20.42(t-1990) + 997.71, March 2011
AFL(t) = -4.63HFO(t-0) – 2.90TS(t-5) + 20.41(t-1990) + 953.49, September 2011
where AFL(t) is the AFL share price in U.S. dollars, t is calendar time. The changes in time lags are shown in red.
In July2011, we reported that the original model gave a correct prediction of the fall in Q2 2011. Here we show that the current fall in the price has to stop and expect a positive correction in Q4 2011. 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 are well within the bounds of the share price uncertainty. However, the price has fallen too much in Q3 and the model residual error (Figure 2) is negative what indicates a positive correction any time soon, if the model is right.
In July2011, we reported that the original model gave a correct prediction of the fall in Q2 2011. Here we show that the current fall in the price has to stop and expect a positive correction in Q4 2011. 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 are well within the bounds of the share price uncertainty. However, the price has fallen too much in Q3 and the model residual error (Figure 2) is negative what indicates a positive correction any time soon, if the model is right.
Figure 1. Observed and predicted AFL share prices.
Figure 2. The model residual error.
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