How to use the ‘Volfefe Index’, which tracks the impact of Trump’s tweets for trading

Love him or loathe him, President Trump moves markets.

President Trump is a prolific twitter user. Some even reported that one of his work phones contains only one app: Twitter.

By some tallies, Donald Trump has tweeted more than 10,000 messages since his presidency began. His 64 million followers on Twitter received multiple updates per day from @realDonaldTrump.

Just recently, JP Morgan published a ‘Volfefe Index to study how the president’s tweet impact interest rate markets. ‘Volfefe’ is a combination of volatility and ‘covfefe’ – a mysterious word posted by the President on May 31, 2017 on Twitter.

In that study, analysts first examined President Twitter messages with natural language methods. By breaking sentences into words, what they found was that trade-related words like ‘China’, ‘Product’, ‘Billion’ and ‘Tariffs’ have a growing impact on markets over time. Presumably this is due to the increased urgency of the Sino-US trade war.

They concluded that many Trump tweets had direct – and immediate – impact on rates’ volatility, especially when these tweets are related to trade or monetary policy. By constructing a ‘Twitter-vol’ index using market-moving words (restricted to top 75 words), the study quantifies the impact of Trump tweets into market observables. The result is this:

Conclusion: It pays to follow Trump’s tweets.

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