Journal of Finance and Bank Management

Decomposition as a Tool for Forecasting Stock Exchange Index: Example of SBI TOP (SlovenianStock Exchange Index)
Aleša Lotrič Dolinar

Abstract
When forecasting Slovenian blue chip stock index (SBITOP) we compare two different approaches. On the one hand, we forecast the SBITOP series per se. On the other hand, we can separately forecast the time series for the (up to10) leading Slovenian stocks that compose the index and then put the estimated components back together, taking all the changes in index structure and correction factors into account. We repeat both forecasts also by adding the volatility term.Finally, we compare the four different approaches from the quality of forecasting point of view, and comment the results.

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