Prague Economic Papers 2019, 28(4):385-401 | DOI: 10.18267/j.pep.703

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

Milan Fičura
Faculty of Finance and Accounting, University of Economics, Prague, Czech Republic

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
JEL classification: C14, C58, G11, G14, G17

Accepted: May 2, 2018; Published: September 3, 2019  Show citation

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Fičura, M. (2019). Profitability of Trading in the Direction of Asset Price Jumps - Analysis of Multiple Assets and Frequencies. Prague Economic Papers, 28(4), 385-401. doi: 10.18267/j.pep.703
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