Do President Trump's tweets affect financial markets?

Frequent tweets of the former president of the United States, Donald Trump, provide a unique opportunity to study how financial markets respond to his statements. To do this, we utilize a precise timestamp of each tweet together with high-frequency financial data. We start by analyzing the impact of...

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Bibliographic Details
Published in:Decision Support Systems 2021-08, Vol.147, p.113577, Article 113577
Main Authors: Gjerstad, Peder, Meyn, Peter Filip, Molnár, Peter, Næss, Thomas Dowling
Format: Article
Language:English
Subjects:
Dirichlet problem
Financial markets
Impact analysis
Latent Dirichlet Allocation
President Trump
Presidential communications and messages
Securities markets
Tariffs
Trade disputes
Trump, Donald J
Tweets
Twitter
Uncertainty
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Summary:Frequent tweets of the former president of the United States, Donald Trump, provide a unique opportunity to study how financial markets respond to his statements. To do this, we utilize a precise timestamp of each tweet together with high-frequency financial data. We start by analyzing the impact of tweets in general, irrespective of their content. We find that tweets by President Trump are followed by increased uncertainty, increased trading and a decline in the US stock market. We utilize two methods in order to study whether the market reaction depends on the content of the tweets. First, classification of Trump's tweets depending on whether they contain a specific word reveals that market response is particularly negative for tweets containing the words “products” and “tariff”. Second, we use Latent Dirichlet Allocation to affiliate tweets with distinct topics. We find that while most topics do not impact financial markets, the US stock market responds to tweets related to the topic of a “trade war” by price decline, increased trading volume and increased uncertainty. The “trade war” tweets affect other financial markets too, as the Chinese stock market responds to these tweets negatively, while the price of gold responds positively. We illustrate the practical importance of our approach by an automated trading system, which achieves positive abnormal returns. •We study the impact of President Trump's tweets on the financial markets.•The US stock market declines and both uncertainty and trading increase after the tweets.•We use Latent Dirichlet Allocation to affiliate tweets with distinct topics.•The response of financial markets is strongest for the topic of a “trade war”.•The US and the Chinese stock market respond negatively; gold price responds positively.
ISSN:0167-9236
1873-5797
DOI:10.1016/j.dss.2021.113577