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The profitability of trading on large Lévy jumps

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  • Kam Fong Chan
  • Phil Gray
  • Zheyao Pan

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.

Suggested Citation

  • Kam Fong Chan & Phil Gray & Zheyao Pan, 2021. "The profitability of trading on large Lévy jumps," International Review of Finance, International Review of Finance Ltd., vol. 21(2), pages 627-635, June.
    • Handle: RePEc:bla:irvfin:v:21:y:2021:i:2:p:627-635
    DOI: 10.1111/irfi.12279
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    References listed on IDEAS

    as
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