In April 2011, we made the following prediction for SunTrust Banks (STI) share price: “… In the second quarter of 2011, the price may drop to the level of $23 (and then to $18) from the current $28“.
This prediction was obtained from a model based on the consumer price index of food less beverages (FB) and the index of tobacco and tobacco products (TOB). The former defining CPI component led the share price by 4 months and the latter one by 6 months. Therefore, the model has a natural 4-month forecast horizon.. The best-fit 2-C model for STI(t) is as follows:
STI(t) = -5.46FB(t-4) – 0.19TOB(t-6) + 36.07(t-1990) + 627.06
where STI(t) is a share price in US dollars, t is calendar time. Figure 1 displays the model and actual prices. The STI actual price has fallen from $28.83 in March to $25.8 in June 2011. We have overestimated the fall but it is still within the uncertainty bounds defined by high/low monthly prices. We expect the price to fall in July 2011.
Figure 1. Observed and predicted STI share prices with monthly high/low (adjusted) prices
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