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.

Year 10 Returns

Weight=1.06
Y=0.857x-2.645
Plus 7 and minus 6
R-squared=0.345

Weight=1.03
Y=1.086x-3.191
Plus 8 and minus 6
R-squared=0.377

Weight=1.00
Y=1.346x-3.675
Plus 7 and minus 6
R-squared=0.397

Weight=0.97
Y=1.622x-4.032
Plus 7 and minus 6
R-squared=0.412

Weight=0.94
Y=1.894x-4.220
Plus 6 and minus 5
R-squared=0.420

Year 20 Returns

Weight=1.06
Y=0.662x-0.239
Plus 5 and minus 4
R-squared=0.473

Weight=1.03
Y=0.832x-0.603
Plus 5 and minus 4
R-squared=0.495

Weight=1.00
Y=1.022x-0.909
Plus 5 and minus 4
R-squared=0.513

Weight=0.97
Y=1.221x-1.113
Plus 5 and minus 4
R-squared=0.524

Weight=0.94
Y=1.414x-1.187
Plus 5 and minus 4
R-squared=0.525

Year 30 Returns

Weight=1.06
Y=0.122x+5.296
Plus 3 and minus 2
R-squared=0.063

Weight=1.03
Y=0.143x+5.319
Plus 2 and minus 2
R-squared=0.057

Weight=1.00
Y=0.162x+5.366
Plus 3 and minus 2
R-squared=0.051

Weight=0.97
Y=0.177x+5.438
Plus 3 and minus 2
R-squared=0.043

Weight=0.94
Y=0.186x+5.533
Plus 3 and minus 2
R-squared=0.036

Summary

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