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Distribution Prediction of Decomposed Relative EVA Measure with Levy-Driven Mean-Reversion Processes: The Case of an Automotive Sector of a Small Open Economy

Zdeněk Zmeškal, Dana Dluhošová, Karolina Lisztwanová, Antonín Pončík and Iveta Ratmanová
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Dana Dluhošová: Department of Finance, Faculty of Economics, VSB-Technical University of Ostrava, 702 00 Ostrava, Czech Republic
Karolina Lisztwanová: Department of Finance, Faculty of Economics, VSB-Technical University of Ostrava, 702 00 Ostrava, Czech Republic
Antonín Pončík: Department of Finance, Faculty of Economics, VSB-Technical University of Ostrava, 702 00 Ostrava, Czech Republic
Iveta Ratmanová: Department of Finance, Faculty of Economics, VSB-Technical University of Ostrava, 702 00 Ostrava, Czech Republic

Forecasting, 2023, vol. 5, issue 2, 1-19

Abstract: The paper is focused on predicting the financial performance of a small open economy with an automotive industry with an above-standard share. The paper aims to predict the probability distribution of the decomposed relative economic value-added measure of the automotive production sector NACE 29 in the Czech economy. An advanced Monte Carlo simulation prediction model is applied using the exact pyramid decomposition function. The problem is modelled using advanced stochastic process instruments such as Levy-driven mean-reversion, skew t-regression, normal inverse Gaussian distribution, and t-copula interdependencies. The proposed method procedure was found to fit the investigated financial ratios sufficiently, and the estimation was valid. The decomposed approach allows the reflection of the ratios’ complex relationships and improves the prediction results. The decomposed results are compared with the direct prediction. Precision distribution tests confirmed the superiority of the decomposed approach for particular data. Moreover, the Czech automotive sector tends to decrease the mean value and median of financial performance in the future with negative asymmetry and high volatility hidden in financial ratios decomposition. Scholars can generally use forecasting methods to investigate economic system development, and practitioners can obtain quality and valuable information for decision making.

Keywords: financial performance; automotive sector; prediction; Monte Carlo simulation; pyramid decomposition; Levy-driven mean-reversion process (search for similar items in EconPapers)
JEL-codes: A1 B4 C0 C1 C2 C3 C4 C5 C8 M0 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2023
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