Does the stock market react to President Trump’s tweets? A study of the stock price reaction of the targeted companies in President Donald Trump’s firm-specific tweets.

Abstract

Does President Donald J. Trump influence the stock market when posting company-specific tweets? In this study we explore the market efficiency theory and whether President Trump’s influence a stock price reaction when targeting companies in his tweets. This is analyzed by conducting an event study to investigate whether there is any abnormality in stock prices surrounding an event and cross-sectional regression with explanatory variables to investigate possible predictors for abnormal return. The main results of the study indicate that it is difficult to find clear significant effects of company-specific tweets on the targeted company’s stock price. The results indicated that regardless of content we find a tendency to a decline in abnormal return, and that this effect is bigger for tweets containing negative content than positive content. When sorting data by sentiment, the results indicate negative effects of tweets containing teaser and threat. Further, out results indicates that mid cap companies can be more effected by negative tweets then larger companies and that there are some differences based on industries. Finally, we find tendencies of increased volatility regardless of content, and some differences in trading volume due to positive or negative content supporting our findings.