A Stock Market Trading System Based on Foreign and Domestic Information

Janusz Brzeszczynski, Boulis Maher Ibrahim

Research output: Contribution to journalArticle

Abstract

This paper investigates whether a particular magnitude and direction of inter-regional return signal transmission dominates the performance of domestic trading in American, European and Australasian stock markets. A trading system design, based on fuzzy logic rules, combines direct and indirect channels of foreign information transmission, modelled by stochastic parameter regressions, with domestic momentum information to generate stock market trading signals. Filters that control for magnitude and direction of trading signals are then used to investigate incremental impact on economic performance of the proposed investment system. The results indicate that at reasonable levels of transaction costs very profitable trades that are fewer in number do not increase investment performance as much as trades based on foreign information of a specific low-to-medium daily return magnitude of 0.5% to 0.75%. These information-based strategies are profitable on risk-adjusted bases and relative to a market, but performance declines considerably when tradable instruments are used.

Original languageEnglish
Pages (from-to)381-399
Number of pages19
JournalExpert Systems with Applications
Volume118
Early online date3 Aug 2018
DOIs
Publication statusPublished - 15 Mar 2019

Fingerprint

Fuzzy logic
Momentum
Systems analysis
Economics
Costs
Financial markets

Keywords

  • Fuzzy system rules
  • Information transmission
  • Stock market forecasting
  • Stock market trading
  • Stock trading system design
  • System testing and performance evaluation

ASJC Scopus subject areas

  • Engineering(all)
  • Computer Science Applications
  • Artificial Intelligence

Cite this

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A Stock Market Trading System Based on Foreign and Domestic Information. / Brzeszczynski, Janusz; Ibrahim, Boulis Maher.

In: Expert Systems with Applications, Vol. 118, 15.03.2019, p. 381-399.

Research output: Contribution to journalArticle

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