A Modern Take on Market Efficiency: The Impact of Trump’s Tweets on Financial Markets

70 Pages Posted: 6 May 2021 Last revised: 19 May 2021

See all articles by Farshid Abdi

Farshid Abdi

University of Massachusetts Amherst

Emily Kormanyos

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance

Zorka Simon

Leibniz Institute for Financial Research SAFE

Date Written: May 5, 2021

Abstract

We focus on the role of social media as a high-frequency, unfiltered mass information transmission channel and how its use for government communication affects the aggregate stock markets. To measure this effect, we concentrate on one of the most prominent Twitter users, the 45th President of the United States, Donald J. Trump. We analyze around 1,400 of his tweets related to the US economy and classify them by topic and textual sentiment using machine learning algorithms. We investigate whether the tweets contain relevant information for financial markets, i.e. whether they affect market returns, volatility, and trading volumes. Using high-frequency data, we find that Trump’s tweets are most often a reaction to pre-existing market trends and therefore do not provide material new information that would influence prices or trading. We show that past market information can help predict Trump’s decision to tweet about the economy.

Keywords: Market efficiency, Social media, Twitter, High-frequency event study, Machine learning, ETFs

JEL Classification: G10, G14, C58

Suggested Citation

Abdi, Farshid and Kormanyos, Emily and Pelizzon, Loriana and Getmansky Sherman, Mila and Simon, Zorka, A Modern Take on Market Efficiency: The Impact of Trump’s Tweets on Financial Markets (May 5, 2021). SAFE Working Paper No. 314, Available at SSRN: https://ssrn.com/abstract=3840203

Farshid Abdi

University of Massachusetts Amherst ( email )

121 Presidents Drive
Amherst, MA 01003-4910
United States

HOME PAGE: http://farshidabdi.net/

Emily Kormanyos

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance ( email )

Amherst, MA 01003-4910
United States

Zorka Simon (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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