Trading systems constructed on financial markets, which are designed for prediction of financial instruments prices and investing in financial assets, can be classified according to the following two broad principles: the first group concerns entirely rule-based systems, while the second approach is more flexible and also more subjective, where only some general guidelines are used but there are typically no fixed rules adopted. In this paper, we propose a rule-based trading system related to the fuzzy logic reasoning in order to investigate how much the central bank's announcements matter on a financial market. The design of the prediction systems for financial markets and the analyses of performance of trading strategies, based on the fuzzy logic rules, neural networks, pattern recognition techniques or other artificial intelligence methodologies, have been subject of research in the existing literature, which expanded during the past two decades. We propose in this paper a rule-based trading strategy relying on the signals extracted from the NBP central bank's announcements regarding its monetary policy decisions. This approach is conceptually close to some fuzzy expert systems (see e.g. Dymova et al. (2012) or Rubell and Jessy (2016), among others) and the stock market investment strategies based on rule-based reasoning (see e.g. Brzeszczyński and Ibrahim (2019)). In this paper, we proposed an investment strategy based on the trading rules to investigate the performance of investments on a broad financial market in Poland in its main three segments in response to central bank's communication of its monetary policy decisions. The results of our analysis, relying on the application of the rule-based trading system, allowed to establish how much the central bank's announcements matter on a financial market. We designed a novel investment strategy and we simulated trades, which enabled us 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 evidence 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.
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. [Dataset]. Hosted on Mendeley [online]. Available from: https://doi.org/10.17632/3ysyh9vkwp.1