TY - JOUR
T1 - How Much Do the Central Bank Announcements Matter on Financial Market? Application of the Rule-Based Trading System Approach
AU - Brzeszczyński, Janusz
AU - Gajdka, Jerzy
AU - Schabek, Tomasz
AU - Kutan, Ali M.
N1 - Funding Information:
This work was supported by the research funding from the Narodowe Centrum Nauki (NCN) / National Science Centre (NSC) in Poland (project number: 2015/19/B/HS4/03238).
PY - 2021/11/15
Y1 - 2021/11/15
N2 - This paper proposes a rule-based trading system to investigate how much the central bank’s announcements matter on a financial market. We design a novel investment strategy and we simulate trades in order to quantify their profitability in the out–of–sample period using the data from a broad financial market in Poland spanning across 3 segments: stock market, foreign exchange market and bonds market.
Our results show that the individual transactions delivered profits in 72.7% cases. The overall profitability across all events and all trading horizons was positive in as many as 63.6% cases.
Although the financial market in Poland was only moderately sensitive to the NBP central bank’s communication, the identified types of the monetary policy announcements are economically significant and very useful for the investors, who can trade based on them and exploit them directly in the design of the rule-based trading strategies.
AB - This paper proposes a rule-based trading system to investigate how much the central bank’s announcements matter on a financial market. We design a novel investment strategy and we simulate trades in order to quantify their profitability in the out–of–sample period using the data from a broad financial market in Poland spanning across 3 segments: stock market, foreign exchange market and bonds market.
Our results show that the individual transactions delivered profits in 72.7% cases. The overall profitability across all events and all trading horizons was positive in as many as 63.6% cases.
Although the financial market in Poland was only moderately sensitive to the NBP central bank’s communication, the identified types of the monetary policy announcements are economically significant and very useful for the investors, who can trade based on them and exploit them directly in the design of the rule-based trading strategies.
KW - Rule-based trading system
KW - Central bank
KW - Monetary policy
KW - Stock market
KW - Foreign exchange market
KW - Bonds market
UR - https://www.scopus.com/pages/publications/85109423288
U2 - 10.1016/j.eswa.2021.115201
DO - 10.1016/j.eswa.2021.115201
M3 - Article
SN - 0957-4174
VL - 182
JO - Expert Systems with Applications
JF - Expert Systems with Applications
M1 - 115201
ER -
