Here we address the stock price model for Advanced Micro Devices (AMD) first time. The model has been obtained using our concept of share pricing. Accordingly, our goal is to test the underlying concept and to estimate time lags and coefficients.
We have borrowed the time series of monthly closing prices of AMD from Yahoo.com and the relevant (seasonally not adjusted) CPI estimates through December 2011 are published by the BLS for March 2011. The evolution of AMD share price is defined by the consumer price index of rent of primary residence (RPR) and that hospital and related services (HOSP). The defining time lags are as follows: the RPR index leads the share price by 1 month and the HOSP by 4 months. The relevant best-fit 2-C models for AMD(t) is as follows:
AMD(t) = -2.21RPR(t-1) – 0.82HOSP(t-5) + 37.87(t-1990) + 267.01, December 2011
where AMD(t) is the AMD share price in U.S. dollars, t is calendar time. Figure 1 depicts the high and low monthly prices for an AMD share together with the predicted and measured monthly closing prices (adjusted for dividends and splits). As a rule, the predicted prices are well within the bounds of the share price uncertainty. The model residual error is shown in Figure 2. We will be reporting on AMD.
Figure 1. Observed and predicted AMD share prices.
Figure 2. The model residual error.