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Profitability of Trading in the Direction of Asset Price Jumps - Analysis of Multiple Assets and Frequencies

Milan Ficura ()

Prague Economic Papers, 2019, vol. 2019, issue 4, 385-401

Abstract: Profitability of a trading system based on the momentum-like effects of asset price jumps was tested on four currency markets (EUR/USD, GBP/USD, USD/CHF and USD/JPY) and three futures markets (Light Crude Oil, E-Mini S&P 500 and VIX), on 7 frequencies (1-minute to 1-day), over a period of more than 20 years. The proposed trading system entered long and short trades in the direction of asset price jumps and held the positions for a fixed horizon, optimized on the in-sample period. The system achieved statistically significant out-sample profits for the USD/CHF, EUR/USD and GBP/USD exchange rates, especially on the 15-minute, 30-minute and 1-hour frequencies, with expected returns of up to 20-30% p.a., including transaction costs. On the 1-day frequency, on the USD/JPY and on the three analysed futures markets, only insignificant profits or losses were achieved. On the 1-minute frequency, the system ended with a loss for all of the assets.

Keywords: asset price jumps; L-estimator; high-frequency trading; momentum trading (search for similar items in EconPapers)
JEL-codes: C14 C58 G11 G14 G17 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.18267/j.pep.703

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Handle: RePEc:prg:jnlpep:v:2019:y:2019:i:4:id:703:p:385-401