AFL stock price model

Aflac Incorporated (AFL) is a financial company in the S&P 500 list. Using new CPI estimates published by the BLS on April 14 we have estimated a preliminary model.  The share price is 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.

Both coefficients in the obtained model are negative. Therefore any growth in both indices causes the share price to fall with a several month delay. The slope of time trend is positive and provides an increment of $20.4 per year. The intercept is $997.7. The best-fit 2-C model for AFL(t) is as follows:

AFL(t) =  -5.02HFO(t-2) – 2.87TS(t-6)  + 20.42(t-1990) + 997.71

where t is calendar time.

The predicted curve in Figure 1 leads the observed price by 2 months with the residual error of $3.94 for the period between June 2003 and March 2011. During the second quarter of 2001, the share price has to decrease to the level of $50.

Figure 1. Observed and predicted AFL share prices.