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BUSINESS FORECASTING WITH FORECASTX

AT&Ts Daily Stock Price

MM 5004
OPERATIONS MANAGEMENT

Created by:
Muhammad Afif (29116476)

MASTER OF BUSINESS ADMINISTRATION


BANDUNG INSTITUTE OF TECHNOLOGY
BANDUNG
2017
EXECUTIVE SUMMARY

Purpose of the Report

The purposes of this report are to (1) provide the reader with an introduction to
popular business forecasting models available, and (2) compare and contrast the ability of
those models to forecast a specific time-series data.

Business Forecasting Methods

Forecasting has becoming increasingly important in todays highly competitive global


market. Firms make business decisions that are based on forecasts of some future events. The
ability to better forecast the direction a particular variable is interest is imperative to
remaining competitive.

This paper introduces the reader to commonly used forecasting methods, including:
simple exponential smoothing, linear regression, times series decomposition, moving
average, weighted moving average and ForecastX ProCast. Additionally, comparisons
are made between the various models by looking at how well each model fits the historical
data being forecast (1 year backward of AT&Ts daily stock prices: from March 18, 2016 to
March 17, 2017) as well as how well it is able to predict the future. The summary statistic R-
square, Mean Absolute Percentage Error (MAPE), AIC, BIC, Sum of Squared Error (SSE) is
used as the yardstick for comparisons.

Conclusions

Although each time-series is unique, decomposition models appear to produce relatively


accurate forecasts while remaining intuitive and easy to explain to managers.
Decomposition with simple exponential smoothing (=1) model and decomposition with
linear regression are best fit the historical data with MAPE = 0,36% and R-square =
99,10%.
Meanwhile, simple exponential smoothing model produce the exact same amount in the
future (0% change in forecast) which is not make sense in the real world.

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AT&T Company Profile

Ticker Symbol: NYSE: T


AT&T is a Fortune 500 company.
Leadership: Randall L. Stephenson, chairman and chief executive officer
2016 Reported Consolidated Revenue: $163.8 Billion

Sector Industry Market Cap


Communications Major Telecommunications $261.7B

AT&T Inc. is an American multinational telecommunications conglomerate,


headquartered at Whitacre Tower in downtown Dallas, Texas. AT&T is the second largest
provider of mobile telephone services and the largest provider of fixed telephone services in
the United States, and also provides broadband subscription television services through
DirecTV. AT&T is the third-largest company in Texas (the largest non-oil company, behind
only ExxonMobil and ConocoPhillips, and also the largest Dallas company). As of February
2017, AT&T is the 12th largest company in the world as measured by a composite of
revenues, profits, assets and market value, and the 12th largest non-oil company. AT&T is the
largest telecommunications company in the world by revenue. As of 2017, it is also the 18th-
largest mobile telecom operator in the world, with 135 million mobile customers. AT&T was
ranked at #4 on the 2017 rankings of the world's most valuable brands published by Brand
Finance.

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BUSINESS FORECASTING METHODS

INTRODUCTION

The focus of this paper is on business forecasting techniques. Throughout this


reading, I used 6 distinct forecasting models which are Linear Regression, Simple
Exponential Smoothing ( = 0,1; 0,3; 0,45; 0,6), Decomposition with SES ( = 0,1),
Decomposition with Linear Regression, Moving Average, and Weighted Moving
Average. Comparisons between the various models will be made by looking at each models
retrospective and forecast R-Square, Mean Absolute Percentage Error (MAPE), AIC, BIC,
Sum of Squared Error (SSE). Being that there is a sufficient amount of data, a 12-month
holdout period was used to evaluate forecast accuracy.

The data forecasted was of AT&Ts daily stock price measured in US dollar. The data
used for forecasts ranged from March 18, 2016 to March 17, 2017, although as mentioned, a
12-month holdout period was use for evaluative purposes.

FORECASTING PROCESS

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TIME HORIZON

A time horizon, also known as a planning horizon, is a fixed point of time in the
future at which point certain processes will be evaluated or assumed to end. A time horizon is
a physical impossibility in the real world. Because of a 12 month of AT&Ts daily stock price
historical data which is slightly volatile and also the stock price in every day could go up and
down, I make the time horizon for AT&Ts daily stock price in short-term period. So I
forecast the stock price for 2 weeks (10 working days).

AT&Ts DAILY STOCK PRICE IN 12 MONTH

SUMMARY AND CONCLUSIONS

Summary

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Abbreviations:
LR: Simple Linear Regression
SES: Simple Exponential Smoothing ( = 0,1; 0,3; 0,45; 0,6)
DSES: Decomposition combine with Simple Exponential Smoothing ( = 1)
DREG: Decomposition combine with Linear Regression
MA: Moving Average (average periods = 5)
WMA: Weighted Moving Average (average periods = 5)

Conclusions

Although each time-series is unique, decomposition models appear to produce relatively


accurate forecasts while remaining intuitive and easy to explain to managers.
Decomposition with simple exponential smoothing (=1) model and decomposition with
linear regression are best fit the historical data with MAPE = 0,36% and R-square =
99,10%.
Meanwhile, simple exponential smoothing model produce the exact same amount in the
future (0% change in forecast) which is not make sense in the real world.