As part of its North America fixed income strategy, J.P. Morgan is introducing the Volfefe index, which is designed to quantify the impact that tweets from President Trump have on market rates volatility.
The president has produced more than 10,000 tweets since taking office, at a pace that has accelerated in recent months to over a dozen non-retweets on his personal account.
The subject of these tweets has increasingly turned toward market-moving topics, most prominently trade and monetary policy - such as his comments on the rate cut by the Federal Reserve at the end of July. The bank says that it finds strong evidence that tweets have increasingly moved US rates markets immediately after publication.
Market-moving tweets exhibit distinct statistical properties, primarily addressing trade and, more recently, monetary policy. In recent months, these tweets also tend to receive fewer likes and retweets than other contemporaneous remarks.
J.P. Morgan will leverage these results along with supervised learning techniques to produce a classifier trained to spot market-moving tweets. The bank then used this classifier to build a 'Volfefe index' that it can employ to measure the impact of presidential tweets on rates volume.
Finally, this index is folded into the bank's volatility fair value model, to demonstrate how the president's tweets have played a statistically significant role in elevating implied volatility.
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