DO INVESTORS CARE ABOUT PRESIDENTIAL COMPANY‐SPECIFIC TWEETS?

• Date: 01 July 2019
• Author: Qi Ge,Alexander Kurov,Marketa Halova Wolfe
• DOI: http://doi.org/10.1111/jfir.12177
• Published date: 01 July 2019

The Journal of Financial Research Vol. XLII, No. 2 Pages 213–242 Summer 2019

DOI: 10.1111/jfir.12177

DO INVESTORS CARE ABOUT PRESIDENTIAL COMPANY‐SPECIFIC

TWEETS?

Qi Ge

Skidmore College

Alexander Kurov

West Virginia University

Marketa Halova Wolfe

Skidmore College

Abstract

When the president of the United States tweets, do investors respond? We analyze

the impact of tweets from President Donald J. Trump’s official Twitter accounts

from November 9, 2016 to December 31, 2017 that include names of publicly traded

companies. We find that these tweets move company stock prices and increase

trading volume, volatility, and institutional investor attention, with a stronger impact

before the presidential inauguration. There is some evidence that the initial impact of

the presidential tweets on stock prices is reversed in the next few trading days.

JEL Classification: G12, G14

I. Introduction

Donald J. Trump, elected the 45th president of the United States on November 8, 2016,

frequently uses the social media platform Twitter as his primary communication

channel. Some of President Trump’s Twitter messages include statements about

specific companies. These tweets attract considerable attention in the financial press.

The discussion about the impact of the tweets, however, is inconclusive. For example,

Wang (2016) reports that the Lockheed Martin stock price dropped after President

Trump tweeted about the company on December 22, 2016: “Based on the tremendous

cost and cost overruns of the Lockheed Martin F‐35, I have asked Boeing to price‐out a

comparable F‐18 Super Hornet!”and numerous sources (e.g., Peltz 2017) describe

attempts at creating algorithms for trading around President Trump’s tweets, but

Kaissar (2017) cautions that the impact of presidential tweets on stock prices may not

be predictable.

We thank the editors, an anonymous referee, Margaret J. Lay, seminar participants at Hamilton College and

Skidmore College, and session participants at the 2017 Liberal Arts Macro Workshop for helpful suggestions.

We also thank Chen Gu and Kun Zhou for research assistance. The opinions in this article are those of the

authors and do not necessarily reflect the views of Skidmore College or West Virginia University.

213

© 2019 The Southern Finance Association and the Southwestern Finance Association

The impact of such company‐specific statements is not clear a priori. On the one

hand, the stock market may consider the tweets as information relevant to future company

fundamentals. As one of the most powerful persons in the world (Ewalt 2016; Gibbs 2017),

the president of the United States holds a unique position with broad powers to influence

policy relevant to companies, such as government contracts, trade tariffs, and government

bailouts. The president’s company‐specific statements may then be understood by investors

to include information relevant to future company fundamentals because the president can

enact measures affecting these companies via executive orders and other means. For

example, the preceding tweet about the cost overrun by the military contractor Lockheed

Martin may be understood by investors as increasing the likelihood of its government

contract being canceled, which would negatively affect the future profitability of the

company. Thus, presidential tweets may form unexpected news events that could move the

stock market. The stock market may then react in an identical way as when facing public

news releases (see, e.g., Chan 2003; Vega 2006). On the other hand, it is possible that the

tweets are only noise without information relevant to company fundamentals. For example,

the tweet about Lockheed Martin may be understood by investors as an empty threat that will

not lead to contract cancellation. The market, therefore, may not react to the tweets, or the

reaction may be only temporary. Temporary effects have been shown in numerous contexts.

For example, Greene and Smart (1999) show that analyst coverage of companies in a Wall

Street Journal column creates only a temporary pressure on stock prices by raising

uninformed noise trading. Tetlock (2007) shows that the effect of media pessimism on the

stock market reverses over the following trading week. Barber and Odean (2008) point out

that attention is a scarce resource and show that individual investors buy stocks that catch

their attention. It is possible that President Trump’s tweets direct investors’attention to the

company mentioned in the tweet. The resulting demand shock may then temporarily push the

price away from fundamentals; however, this mispricing is corrected in the subsequent days

as attention fades.

We review all tweets from November 9, 2016 to December 31, 2017 posted on

@POTUS and @realDonaldTrump Twitter accounts used by President Trump,

document the tweets that include the name of a publicly traded company,

1

and analyze

their impact on the company stock price, trading volume, volatility, and institutional

investor attention. We find that the tweets move the company stock price and increase

trading volume, volatility, and institutional investor attention.

2

We also find that the

1

This data set of company‐specific tweets is unique. For comparison, we reviewed tweets in Twitter

accounts used by former President Barack Obama, the only other president that used Twitter: @POTUS44 from

inception in May 2015 through January 2017 and @BarackObama from February 2016 through January 2017.

The @BarackObama account shows no tweets naming public companies. The @POTUS44 account shows only

one tweet about Lehman Brothers on September 15, 2015 mentioning the bankruptcy of the company that

occurred in 2008 and one tweet mentioning Shell on May 28, 2015 in response to a tweet from another Twitter

user who wrote about this company.

2

Wagner, Zeckhauser, and Ziegler (2017) study reactions of individual stock prices in the days and weeks

after the 2016 presidential election and document numerous interesting findings such as the outperformance of

high‐beta stocks and high‐tax firms. The findings in our article show a reaction on the day of the tweet, which is

in addition to the reaction documented by Wagner, Zeckhauser, and Ziegler.

214 The Journal of Financial Research