Relating Cash Flow Forecast Errors to Revision Patterns

Kurzfassung/Abstract

Our study closes a research gap on cash flow revisions in large, multinational corporations. Specifically, we explore how revisions relate to forecast accuracy and how patterns in revision processes can be quantified and leveraged to reduce prediction errors in forecasts of foreign exchange exposure. We suggest novel metrics to determine patterns in revision processes related to the concentration of revision volume and show that these measures have higher explanatory power with regard to how forecast error is related to forecast revisions (point in time, volume) and exposure than previously used measures solely relying on correlations among revisions and error. Our results suggest that accounting for these patterns improves the accuracy of foreign exchange exposure forecasts.