Forecasting Apple Inc. Stock Prices Using S&P500– An OLS Regression Approach with Structural Break

Abstract

The study analyzes the impact of the S&P500 returns along with influence of S&P500 Information Technology stocks (S&P500-IT) on Apple Inc. daily returns. This study also gives an insight into the connection between S&P500 Composite (S&P500-C) and Apple Inc. and S&P500-IT. The constant fluctuation of S&P500-C was noted in the time period. However, the rapid variation in regular returns at the beginning of 2018 has also been a part of the observation. The variation of the S&P500 in the case of IT stocks in 2018 was scrutinized. For the S&P500-C index, two linear estimation models for the daily returns of Apple Inc. have been generated. The indexes of S&P markets were regarded as predictors and the variable effects were measured for daily returns of Apple Inc. The models were later modified into a multiple linear regression model including S&P500-IT and S&P500-C as mutual predictors. A structural break was examined with the Chow analysis. The index of S&P500-IT and S&P500-C in the complex-regression model exhibits a negative effect on the daily returns of Apple Inc., due to multi co-linearity of the daily returns with S&P500-IT stocks. The structural breaks were insignificant in the improved regression model.