Trump Tweets and the Efficient Market Hypothesis

18 Pages Posted: 4 Jun 2017  

Jeffery A. Born

Northeastern University - Finance and Insurance Area

David Hobson Myers

Northeastern University; Lehigh University

William Clark

Northeastern University

Date Written: May 24, 2017

Abstract

In a Semi-Strong Form (SSF) Efficient Market, asset prices should respond quickly and completely to the public release of new information. In the period from his election on 11/8/16 and his swearing in ceremony on 1/20/17, President-elect Trump posted numerous statements (‘tweets’) on his Twitter messaging service account that identified ten publicly traded firms. In the absence of new information, the Efficient Market Hypothesis (EMH) predicts that these announcements should have little or no price impact on the common stocks of these firms. Using standard event study methods, we find that positive (negative) content tweets elicited positive (negative) abnormal returns on the event date and virtually all of this effect is from the opening stock price to the close. Within five trading days, the CARs are no longer statistically significant. President-elect Trump’s tweets were associated with increases in trading volume and Google Search activity. Taken as a whole, the price and trading volume response, combined with Google Search activity is consistent with hypothesis that it was small/noise traders who were acting on President-elect Trump’s tweets and that their impacts were transitory.

Keywords: Efficient Market Hypothesis, Trump, Tweets, Noise Traders

JEL Classification: G14

Suggested Citation

Born, Jeffery A. and Myers, David Hobson and Clark, William, Trump Tweets and the Efficient Market Hypothesis (May 24, 2017). Available at SSRN: https://ssrn.com/abstract=2973186 or http://dx.doi.org/10.2139/ssrn.2973186

Jeffery A. Born (Contact Author)

Northeastern University - Finance and Insurance Area ( email )

Boston, MA 02115
United States

David Hobson Myers

Northeastern University ( email )

Boston, MA 02115
United States

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

William Clark

Northeastern University ( email )

Boston, MA 02115
United States

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