The profitability of trading on large Lévy jumps

Kam Fong Chan, Phil Gray, Zheyao Pan

Research output: Contribution to journalLetterResearchpeer-review

1 Citation (Scopus)

Abstract

While past research has studied the profitability of trading based on jump signals, the notion of differentiating between jumps according to their magnitude has received relatively little attention. We utilize the approach of Lee and Hannig (2010) to identify Lévy jumps and classify them as small and large. The empirical analysis shows that the arrival of large Lévy jumps provides a strong trading signal in five major equity markets. In contrast, the signal from small Lévy jumps is negligible.

Original languageEnglish
Pages (from-to)627-635
Number of pages9
JournalInternational Review of Finance
Volume21
Issue number2
DOIs
Publication statusPublished - Jun 2021

Keywords

  • high-frequency trading
  • jump trading strategy
  • Lévy jumps

Cite this