Here we revisit
our stock price model for Aflac Incorporated (AFL). This model was first
estimates in March 2011 and has been several times re-estimated with new data.
Currently, we have the closing monthly price for October 2012 and the consumer
price indices for September 2012. We decompose a share price into a weighted
sum of two consumer price indices. This allows linking any share price with
relative pricing power of goods and services associated with the company. Accordingly,
our goal is to test the original model and to update time lags and
coefficients. Overall, the model has demonstrated an excellent predictive power
and stability over the whole period since 2011. It can predict at a two-month
horizon and the current prediction foresees no significant changes in the AFL
price in November-December 2012.

As in all previous
models, the AFL share price is defined by the consumer price index of household
furnishing and operations (

*HFO*) and that transportation services (*TS*). In February 2012, the defining time lags were as follows: the HFO index led the share price by 1 month and the TS by 6 months, but in the current model the first lag in two months. Five relevant best-fit models for*AFL(t)*are as follows:*AFL(t) =*-5.02

*HFO(t-2) –*2.87

*TS(t-6) +*20.42

*(t-*1990

*) +*997.71, March 2011

*AFL(t) =*-4.63

*HFO(t-*

*0*

*) –*2.90

*TS(t-*

*5*

*) +*20.41

*(t-*1990

*) +*953.49, September 2011

*AFL(t) =*-4.63

*HFO(t-*

*1*

*) –*2.87

*TS(t-*

*6*

*) +*20.23

*(t-*1990

*) +*948.72, December 2011

*AFL(t) =*-4.65

*HFO(t-*

*1*

*) –*2.86

*TS(t-*

*6*

*) +*20.20

*(t-*1990

*) +*949.35, February 2012

*AFL(t) =*-4.43

*HFO(t-*

*2*

*) –*2.71

*TS(t-*

*6*

*) +*19.10

*(t-*2000

*) + 1094*.64, September 2012

where

*AFL(t)*is the AFL share price in U.S. dollars,*t*is calendar time.
In
March 2012, we predicted that the price would likely not change much in 2012Q1
and it stayed around $45. Figure 1 confirms our prediction. It 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). The model
residual error ($3.84 for the period between July 2003 and September 2012) is
depicted in Figure 2.

We do
not see any large change in the price in November-December 2012 and will
revisit the model in January for a new forecast.

Figure 1.
Observed and predicted AFL share prices.

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