Donald Trump, investor attention and financial markets

Abstract

[EN] Information attracts attention but attention is costly. Social media has been at the forefront of information dissipation due to the sheer number of users propagating information in a fast but cheap way. We look into one specific case where Donald Trump’s tweets on companies have had an effect on retail investors whose only source of information is internet. We find that retail investor attention spikes as indicated by surge in Google Search Volume Index following Donald Trump’s tweets, irrespective of the tone in the tweet. We also find that Trump’s tweets result in retail investors selling off stock when retail investor attention is low: retail investors sell stocks, and institutional investors buy them at later date. Finally, we analyze the daily abnormal returns of the stocks following the tweets and find that attention and tone of the tweet are opposing factors when determining abnormal returns following the tweet.