Crisis Index Prediction Based on Momentum Theory and Earnings Downside Risk Theory: Focusing on South Korea’s Energy Industry

Abstract

(1) Background: The economic impact of supply and demand in the energy industry can be seen throughout raw material production, processing and distribution. The purpose of this study is to provide academic information to prepare for crisis management through prediction using indices. (2) Method: In order to predict a crisis of the energy industry, the Crisis Index presented by the Korea Institute of Science and Technology Information was utilized instead of the economic indicators that have hitherto been widely used. Specifically, we propose a new forecasting model based on the concept of economic momentum theory used in financial research and the proper weighting of the earning downside risk theory. Then, statistical empirical analysis was performed to verify the new prediction model. (3) Results: As the result of the empirical analysis, the risk index prediction model proposed in this study showed statistically significant results in predicting the future risk index. (4) Conclusions: This study proposed a risk prediction model using an index and thereby provides an academic analysis of the predictability of numerous indicators created for various purposes and, furthermore, provides implications for predicting crises in the Korean energy industry.