Can aggregate performance metric be used to predict future returns?

Abstract

The aim of this paper is to present an aggregate performance measure for indication of profitable trading systems. The performance measure consists of profitability, favourability, financial default and stability subindexes. The aggregate index is tested on 20 trading systems, across 16 currency pairs and evaluated on out of sample returns. Relationship between aggregate index value and out of sample returns is examined. The paper also discusses the strengths and weaknesses of elaborated model and provides possibilities to enhance the process of performance measurement of trading systems.