Question

The following data the performance of the Eurozone blue-chips stock in the form of end-of-year values of the Euro Stoxx index from 1995 to 2015.

Year	Euro Stoxx Index
1995	1507
1996	1850
1997	2532
1998	3342
1999	4904
2000	4772
2001	3806
2002	2386
2003	2761
2004	2951
2005	3579
2006	4120
2007	4400
2008	2451
2009	2966
2010	2793
2011	2317
2012	2636
2013	3109
2014	3146
2015	3268

Question

1. Using a smoothing coefficient of W = 0.25, exponentially smooth the series and plot the results.
2. What is your exponentially smoothed forecast for 2016 when W = 0.25?
3. What conclusions can you reach concerning how stocks have performed in the past?

Answer 1

a. Using the R code, we obtain the following;

> euro.index = ses(es_1,alpha=0.25, start = c(1995), end = c(2015), frequency = 1)
> plot(euro.index, main = "Exponential Smooth Series with W=0.25", col = "Blue")

b. > euro.index_2016 <- ses(es_1, h=1, alpha=0.25, initial="simple")
> euro.index_2016
Point Forecast Lo 80 Hi 80 Lo 95 Hi 95
2016 3051.644 1780.501 4322.787 1107.598 4995.69

The value for the forecast is 3051.644.

c. So as we can see from there have been some fluctuations and sharp falls in 2000 and 2007. The overall average has been around 3123.