JPMorgan Creates Index to Track How Presidential Tweets Move Markets

By:
Chris Gaetano
Published Date:
Sep 10, 2019
history-in-hd-cTz5-T7voqQ-unsplash

JPMorgan Chase & Co. has developed a new index meant to track how the president's frequent Twitter musings affect the global economy, with its own analysts saying that his messages account for a measurable fraction of implied volatility, according to Bloomberg. Called the "Volfefe Index," named for the president's bizarre "covfefe" tweet, the index focuses specifically on how the president's online communications affect the bond market, based on the firm's analysis of looking at Treasury yields in the five minutes immediately after a tweet; the index, said Bloomberg, shows a rolling one-month probability that each one is a market-moving event. 

Other financial institutions have done similar analyses, though none so far has made an index based out of them. Bank of America Merrill Lynch, for example, found that days when the president tweets frequently tend to see negative stock returns of 9 basis points, on average, whereas times when he is relatively quiet see positive returns of an average of 5 basis points. Citi, meanwhile, found that the president’s tweets are generally followed by a stretch of higher volatility across global currency markets, and far from growing numb to the effect, traders seem to be more sensitive to them than before. 

Tweets generally can have significant market impacts: Witness, for example, the sturm und drang connected with Tesla's Elon Musk, whose surprise announcement that he was planning to take the company private eventually led to securities fraud charges from the SEC. Even further back, a tweet claiming that then-president Obama had been injured in an explosion roiled financial markets before the hoax was revealed. While people have no trouble reacting rashly to recent news, amplifying the market impact of social media is the large number of algorithmic trading bots that use such posts as one of their factors in deciding whether to buy or sell assets. The market turmoil that followed the hoax story, for instance, was driven largely by bots. 

Click here to see more of the latest news from the NYSSCPA.