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Averaged Chain Substitution Method

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  • Veselin Mitev

Abstract

The article presents the essence and methodology of the universal and precise method of determinant factor analysis developed for the needs of financial and economic analysis. The averaged chain substitution method is a modification of the chain substitution method, which is the fundamental and most commonly used method of determinant factor analysis. The averaged method of chain substitutions eliminates the only significant disadvantage of the chain substitution method, namely the ambiguity (non-accuracy) of the results obtained thereby regarding the quantitative measurement of the individual influence which the participating factor variables exert on the variation of the result indicator while changing the order of the substitution of factor variables in the construction of the factor chains. The methodology of the developed average chain substitution method is presented. Mathematical expressions are derived for the quantitative determination of the individual factor influences over the variation of the result indicator with those dependences between result indicator and participating factor variables that are most commonly used in financial and economic analysis. The methodology of the offered method can also be applied to more complex mathematical dependencies that define the relationship between result indicator and participating factor variables. Similarly, it is applicable in the study of a wide range of economic and non-economic indicators.

Suggested Citation

  • Veselin Mitev, 2020. "Averaged Chain Substitution Method," Ikonomiceski i Sotsialni Alternativi, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 90-100, December.
    • Handle: RePEc:nwe:iisabg:y:2020:i:4:p:90-100
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    File URL: https://www.unwe.bg/doi/alternativi/2020.4/ISA.2020.4.09.pdf
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    More about this item

    Keywords

    financial and economic analysis; chain substitution method;

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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