We have been reporting on the performance of our share price model for Loews Corporation (NYSE: L)
since 2010. Loews “operates primarily
as a commercial property and casualty insurance company”. In November 2012, we presented a model including data available
for October 2012. Here we update the model with the closing price through March
2014 and the (not seasonally adjusted) consumer price indices for February 2014.
Our model
decomposes a share price into a weighted sum of two consumer price indices (selected
from 92 CPIs), linear trend and constant; all coefficients and time lags to be
estimated by a LSQ procedure. For L,
the same model is valid since November 2008 and does not show any clear sign of
changes in the future. This is a reliable model valid during the past 65+
months!
A preliminary model for Loews Corp. was obtained in September 2009 and
covered the period from November 2008. This initial model included the index of
food without beverages (FB), which
led by 6 months and the index of transportation service (TS) with a 4 months lead:
L(t) = -2.52FB(t-6) –
1.38TS(t-4) +27.93(t-1990) + 377.24, stdev=$2.04, September 2009
where L(t) is the share price in US dollars, t is calendar time. Since November 2010, the defining indices were the same: the index of food and
beverages (F) and the TS index. Figure
1 depicts the evolution of the indices, which provide the best fit model. (The
difference between F and FB is just marginal.) The food and beverages index
leads by 5 months and the TS index by 4 months. Table 1 demonstrates that the original model
does not show any tangible change with time - only coefficients have been
slightly fluctuating:
L(t) = -2.04F(t-5) –
2.08TS(t-4) +28.09(t-1990) + 441.81, Nov 2010
L(t) = -2.03F(t-5) –
2.12TS(t-4) +28.23(t-1990) + 448.98, Mar 2011
L(t) = -2.01F(t-5) –
2.09TS(t-4) +27.96(t-1990) +440.65, Sep. 2011
L(t) = -2.03F(t-5) –
2.02TS(t-4) +27.65(t-1990) +431.99, Dec 2011
L(t) = -2.01F(t-5) –
2.01TS(t-4) +27.49(t-1990) +428.70, Feb 2012
L(t) = -2.00F(t-5) –
1.96TS(t-4) +27.18(t-2000) +693.99, Sep 2012
L(t) = -1.89F(t-5) –
1.93TS(t-4) +26.23(t-2000) +670.12, Mar 2014
The current model is
depicted in Figure 2 together with high and low monthly prices as a proxy to
the uncertainty bound of the share price. The predicted curve leads the observed
one by 4 months. The solid red line presents the contemporary prediction, i.e.
one sees four months ahead. Major falls and rises are well forecasted four
months in advance. The model residual error is of $2.61 for the period between July
2003 and March 2014, as shown in Figure 3.
Figure 2 predicts a
significant rise in L share price – to $59 in June. With the current level of
$45 it makes 30% in three months. With the longer record of successful price prediction
at a three months horizon we cannot exclude a significant (much larger than the
standard error) positive correction.
Table 1. Selected models
for the period between November 2008 and March 2014.
|
Month
|
b1
|
CPI1
|
lag1
|
b2
|
CPI2
|
lag2
|
c
|
d
|
|
Mar-14
|
-1.890
|
F
|
5
|
-1.928
|
TS
|
4
|
26.235
|
670.116
|
|
Feb
|
-1.913
|
F
|
5
|
-1.918
|
TS
|
4
|
26.321
|
671.512
|
|
Jan
|
-1.961
|
F
|
5
|
-1.919
|
TS
|
4
|
26.628
|
678.268
|
|
Dec-13
|
-1.993
|
F
|
5
|
-1.919
|
TS
|
4
|
26.856
|
683.139
|
|
Nov
|
-1.996
|
F
|
5
|
-1.920
|
TS
|
4
|
26.876
|
683.735
|
|
Oct
|
-1.991
|
F
|
5
|
-1.914
|
TS
|
4
|
26.808
|
681.817
|
|
Sep
|
-1.991
|
F
|
5
|
-1.928
|
TS
|
4
|
26.889
|
684.539
|
|
Aug
|
-1.986
|
F
|
5
|
-1.927
|
TS
|
4
|
26.848
|
683.596
|
|
Oct-12
|
-1.999
|
F
|
5
|
-1.947
|
TS
|
4
|
27.097
|
689.405
|
|
Sep
|
-2.002
|
F
|
5
|
-1.952
|
TS
|
4
|
27.147
|
690.783
|
|
Aug
|
-1.996
|
F
|
5
|
-1.953
|
TS
|
4
|
27.096
|
689.968
|
|
Jul
|
-1.999
|
F
|
5
|
-1.958
|
TS
|
4
|
27.140
|
691.539
|
|
Jun
|
-1.994
|
F
|
5
|
-1.956
|
TS
|
4
|
27.092
|
690.232
|
|
May
|
-1.993
|
F
|
5
|
-1.960
|
TS
|
4
|
27.107
|
689.991
|
|
Apr
|
-1.998
|
F
|
5
|
-1.963
|
TS
|
4
|
27.159
|
691.350
|
|
Mar
|
-2.002
|
F
|
5
|
-1.964
|
TS
|
4
|
27.185
|
692.307
|
|
Dec-10
|
-2.040
|
F
|
5
|
-2.085
|
TS
|
4
|
28.090
|
441.815
|
|
Nov
|
-2.041
|
F
|
5
|
-2.073
|
TS
|
4
|
28.028
|
437.890
|
|
Oct
|
-2.047
|
F
|
5
|
-2.074
|
TS
|
4
|
28.078
|
436.265
|
|
Sep
|
-2.031
|
F
|
5
|
-2.079
|
TS
|
4
|
27.999
|
433.271
|
|
Aug
|
-2.041
|
F
|
5
|
-2.074
|
TS
|
4
|
28.035
|
430.991
|
|
Jul
|
-2.086
|
F
|
5
|
-2.016
|
TS
|
4
|
28.023
|
424.383
|
|
Jun
|
-2.115
|
F
|
5
|
-1.988
|
TS
|
4
|
28.064
|
420.540
|
|
May
|
-2.228
|
F
|
5
|
-1.868
|
TS
|
4
|
28.194
|
410.849
|
|
Aug-09
|
-2.523
|
FB
|
6
|
-1.380
|
TS
|
4
|
27.927
|
377.241
|
|
Jul
|
-2.568
|
FB
|
6
|
-1.378
|
TS
|
4
|
28.165
|
379.330
|
|
Jun
|
-2.613
|
FB
|
6
|
-1.352
|
TS
|
4
|
28.286
|
377.759
|
|
May
|
-2.621
|
FB
|
6
|
-1.352
|
TS
|
4
|
28.336
|
376.243
|
|
Apr
|
-2.641
|
FB
|
6
|
-1.349
|
TS
|
4
|
28.431
|
375.306
|
|
Mar
|
-2.656
|
FB
|
6
|
-1.373
|
TS
|
4
|
28.596
|
378.046
|
|
Feb
|
-2.550
|
FB
|
6
|
-1.373
|
TS
|
4
|
28.037
|
365.204
|
|
Jan
|
-2.399
|
FB
|
6
|
-1.352
|
TS
|
4
|
27.098
|
344.684
|
|
Dec-08
|
-2.337
|
FB
|
6
|
-1.321
|
TS
|
4
|
26.611
|
331.821
|
|
Nov
|
-2.323
|
FB
|
6
|
-1.313
|
TS
|
4
|
26.497
|
327.081
|
Figure 1. Evolution of the price indices
F and TS.
Figure 2. Observed and predicted share prices.
Figure 3. The model residual error; stdev=$2.61.
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