How To Trade The News -- Anticipating News-Driven Volatility

Conventional wisdom holds that public policy risks are random and exogenous random variables that generate market volatility unrelated to, and sometimes in opposition to, “the fundamentals. Even when public policy decisions are rational in the sense that they are made in response to demonstrated demand from the populace – often articulated in public opinion polls and other observable behaviors – the decisions themselves are viewed as being irrational because the underlying drivers of the decisions are emotional opinions and actions of individuals.

Exposure to public policy risks are viewed as being difficult, if not impossible, to hedge because the underlying risk class is seen as being no more predictable than the ability to hit a bulls eye in a dart board.

Efforts to anticipate public policy outcomes can be viewed with suspicion. Conventional wisdom holds that the only way to anticipate accurately a policy decision is to acquire material non-public information (which in most countries is illegal) or to have access to a crystal ball.

Conventional wisdom is wrong.

Savvy investors know this, which is why they invest in fast, comprehensive delivery mechanisms in order to accelerate their access to material publicly available information. From the telegraph and the tickertape to the Bloomberg terminal to today’s APIs, the name of the game has been access the raw data (news stories) faster and better than the competition.

Public policy risk is neither exogenous nor random. Advanced technology makes it possible to measure the risk of a shift away from the status quo. And if you can measure the risk, you can manage it, price it, mitigate it, and generate alpha from it.

As we noted in Rule 5, being able to position strategically to generate alpha from the news cycle requires being relentless about acquiring the best information possible regarding what policymakers do and say. But how does one make the leap from acquiring the raw data (words) to connecting dots in a way that generate strategic insight?

Enter Rule 3. Be Strategic. Specifically: focus on strategically significant inflection points in the public policy process that reliable generate headline risk. Modern western liberal traditions regarding transparency in government fortunately mean that these inflection points are published by policymakers. More importantly, they are published sometimes months in advance. So if you know where to look for meeting and summit information, or you know the timeline for decision-making, all that remains is to layer on top of that chronological information strategically significant inflection points in your portfolios (options expiration dates, bond coupons and maturities, bond auctions, swap pricing re-sets, etc.). A simple calendar with alerting functions is all you need to anticipate news-driven volatility spikes, particularly for global macro policy issues.

Building the calendar can take some time and specialized knowledge. We know, because it took a few hours to input all the publicly available information regarding G7, G20, FSB, GFIN, BCBS, WTO, EU, and other global macro meetings into our own company calendar. The calendar –with daily and weekly alerting functions -- is free to use for members of the BCMstrategy, Inc. open Slack channels.

For example, on Sunday this week the calendar alert looked like this on our Slack channel:

How can you discover in advance, legally, the agenda for the meeting? We have tools for this as well, so stay tuned.

Today’s post instead focuses on realizing that you can easily anticipate spikes in headline risk volatility merely by paying close attention to meeting and summit dates.

All you have to do is program a calendar and ask it to alert you 5 days before a meeting. Then you are ready to maximize alpha from news-driven volatility as statements and leaks start flying before, during, and after a major meeting.

Your colleagues and bosses will start to think you are using a crystal ball. But we will all know that the reality is far more mundane and down-to-earth. In reality, you are only just using the humdrum calendar in a strategic way that treats public policy risks as an asset class rather than as a random variable.


BCMstrategy, Inc. is a start-up company that quantifies public policy risks using patented technology and 9+ layers of process automation to deliver (i) daily analytical measurements of public policy risks regarding trade, Brexit, banking, and FinTech regulatory risks and (ii) time series data showing policy reaction functions for those risks. In addition, the data is used to power two research reports: The FinTech RegTrends Report (monthly) and the C | P | C Report (weekly, covering global regulatory policy in the cryptocurrency, payments, and CBDC sectors).