How much do the central bank announcements matter on financial market? Application of the rule-based trading system approach.

Brzeszczyński, Janusz; Gajdka, Jerzy; Schabek, Tomasz; Kutan, Ali M.

Abstract

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.

Citation

BRZESZCZYŃSKI, J., GAJDKA, J., SCHABEK, T. and KUTAN, A.M. 2021. How much do the central bank announcements matter on financial market? Application of the rule-based trading system approach. Expert systems with applications [online], 182, article 115201. Available from: https://doi.org/10.1016/j.eswa.2021.115201

• Journal Article Type: Article
• Acceptance Date: May 11, 2021
• Online Publication Date: May 23, 2021
• Publication Date: Nov 15, 2021
• Deposit Date: Mar 31, 2023
• Publicly Available Date: Mar 31, 2023
• Journal: Expert systems with applications
• Print ISSN: 0957-4174
• Electronic ISSN: 1873-6793
• Publisher: Elsevier
• Peer Reviewed: Not Peer Reviewed
• Volume: 182
• Article Number: 115201
• DOI: https://doi.org/10.1016/j.eswa.2021.115201
• Keywords: Rule-based trading system; Central bank; Monetary policy; Stock market; Foreign exchange market; Bonds market
• Public URL: https://rgu-repository.worktribe.com/output/1893465
• Related Public URLs: https://rgu-repository.worktribe.com/output/1925322 (Dataset)