More Prediction Equations with Weighted Earnings

Here are the 10, 20 and 30 year stock return equations using weighted earnings. My start years were 1923-1980.

This time I sampled weighed 100E5/P instead of the standard 100E10/P.

In the equations, Y=real percentage annualized stock returns and x=100E5/P.

Year 10 Returns

Weight=1.06
Y=1.075x-3.470
Plus 7 and minus 6
R-squared=0.371

Weight=0.94
Y=1.651x-4.232
Plus 7 and minus 6
R-squared=0.406

Year 20 Returns

Weight=1.06
Y=0.856x-1.111
Plus 5 and minus 4
R-squared=0.528

Weight=0.94
Y=1.284x-1.520
Plus 5 and minus 4
R-squared=0.550

Year 30 Returns

Weight=1.06
Y=0.146x+5.242
Plus 2 and minus 2
R-squared=0.060

Weight=0.94
Y=0.189x+5.363
Plus 3 and minus 2
R-squared=0.047

Summary

This was a very limited comparison.

All of these results were close.

The 0.94 weight did best at Years 10 and 20. The 1.06 weight did best at Year 30.

Have fun.

John Walter Russell
May 30, 2008