Here we revisit our original
share price model for Avon Products (NYSE: AVP). In April 2011, this model also
showed a higher level of reliability and described the price through March 2011.
The AVP model was based on our concept linking share pieces and consumer price
indices. The share price model for Avon Products was defined by the index of other
household equipment and furnishing (

*OHEF*) and that of public transportations (*TPU*). Figure 1 illustrates the evolution of these indices. In September 2011, we revised the original model and confirmed that the former CPI component led the share price by 8 months and the latter one led by 5 months.
Here we revisit the model
using the monthly closing prices (adjusted for splits and dividends) and CPIs
for the period through March 2014. (The CPIs are available only for February
2014.) The principal result is that the underlying model is practically the
same as two and a half years ago with practically the same time lags but
slightly different coefficients.

Currently, the AVP
model predicts that the price is going to rise by approximately $8 in the first
half of 2014. This is equivalent to a 50 per cent return.

Three consequent

*AVP(t)*models, which cover and are valid for the period between 2010 and 2014, are as follows:*AVP(t) = -2.43OHEF(t-8) – 0.33TPU(t-5) - 5.22(t-2000) + 392.49 , March2011*

*AVP(t) = -2.25OHEF(t-8) – 0.33TPU(t-5) - 4.58(t-2000) + 366.41 , September 2011*

*AVP(t) = -2.03OHEF(t-9) – 0.32TPU(t-6) - 4.21(t-2000) + 296.44 ,*

*March*

*2014*

where

*AVP(t)*is a share price in US dolalrs,*t*is calendar time. Both coefficients are negative. The slope of time trend is also negative. There is some fluctuation in all coefficients caused by the uncertainty in measurements of both the stock prices and the CPIs. Nevertheless, these three models provide an accurate prediction at a six month horizon as Figure 2 depicts. The predicted curve in Figure 2 leads the observed price by 6 (!) months with the residual error of $2.97 for the period between July 2003 and March 2014. The model residual for the same period is shown in Figure 3.
Figure 1. Evolution of the
price of OHEF and TPU.

Figure 2. Observed
and predicted AVP share prices.

Figure 3. Residual
error of the model.

I can't believe I found your articles today on AMD message board on Yahoo.

ReplyDeleteYou analyze market and individual securities just like I do.

Most of people thought I was weird.

Studied Physics and Economics undergrad.

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