Finance & Markets
E rratic, rambling, vainglorious – tweets from former president Donald Trump often sent markets scurrying to make sense of them. But could his thinking out loud on Twitter have exerted more influence on the largest markets in the world than we ever realised? Was his Twitter habit more strategic than we gave him credit for? We set out to prove that certain opinionated tweets gave the dollar – the world’s safe-haven currency – a tangible boost and had a measurable impact on international currency markets in terms of value and activity. Even before his presidency, Trump was a phenomenon on Twitter. Once in office, he posted more than 23,800 tweets and amassed 79 million followers. In a single day, he sent a record 142 tweets, and, in 2020, he tweeted more than 10,600 times. Market players followed these tweets avidly – from armchair traders and small-time investors to leading global banks. On stock exchanges, he could – briefly – send shares of individual companies tumbling or soaring, leading one industry expert to create an automated tool to trade on companies mentioned in his tweets. But could he really have the power to move some of the largest markets in the world that see some $6.3 trillion of trades a day? The sheer scale of foreign exchanges means they are exceptionally difficult to influence – central banks and governments pit enormous resources to maintain stability. Could 140 characters really shift them? We’ve created an economic model – the first, we believe, to take a comprehensive look at the impact of Trump’s tweets
across the dollar and a group of international currencies. And what we’ve discovered is surprising. You might expect savvy markets to discount upbeat commentary from a leader with much to gain from talking up the national economy. But we show that Trump’s tweets about trade and the economic outlook nonetheless reduced volatility in the market and created a consensus of opinion among market players – or at least less disagreement. Crucially, they raised the value of the dollar on the foreign exchanges – quite a feat for just one man with access to the internet. Trump’s Twitter feed was noisy, and we used sophisticated language analysis tools to highlight only the tweets that we judged relevant to international currency markets. Amid complaints against the media, Hillary Clinton and a perceived witch hunt, we were able to identify Trump tweets that dealt with economic fundamentals and international trade. More than half of these particular tweets were upbeat, with nearly three in ten neutral and one in five negative. As one typically optimistic tweet enthused: “HAPPY THANKSGIVING, your Country is starting to do really well. Jobs coming back, highest Stock Market EVER, Military getting really strong, we will build the WALL, V.A. taking care of our Vets, great Supreme Court Justice, RECORD CUT IN REGS, lowest unemployment in 17 years....!” Some tweets explicitly mentioned trade policy, while others made direct reference to international currencies. Our methods – based on documented volumes of trade, volatility and the rise of the dollar – prove beyond doubt that these tweets had an impact. This was visible among those sympathetic to the then president but also
TO THE CORE
1. Trump tweeted more upbeat economic sentiments following negative media coverage. 2. His tweets about trade and the economic outlook reduced volatility in the markets. They also raised the value of the dollar on foreign exchanges. 3. Market gains were short-lived and often reversed within an hour, but that would be ample
time for traders to benefit in markets that place an emphasis on being first.
4. Trump’s influence using social media is – to date – unique, but demonstrates the potential impact of targeted tweets from such a powerful individual. It raises ethical questions about a leader possessing the power to drive the market.
“Many will see a leader possessing the ability to drive the market through social media as a dangerous level of power”
among rational, detached traders. The timings of Trump’s tweets about the economy and international trade became a hot topic. Our close analysis has revealed a distinct correlation between his upbeat sentiments on Twitter and negative media coverage – notably, of the ongoing investigation by US Special Counsel Robert Mueller into potential Russian meddling in the 2016 US election. And the frequency and timing of these tweets suggest a deliberate tactic of using positive messaging about the economy to distract from potentially damaging news. Of course, the market gains in the wake of a Trump tweet about the economy or trade were short-lived and were often reversed within an hour. But one hour is a long time in markets where tools are built to capitalise on being the first
What we’ve shed light on are the mechanisms that can prove the impact of targeted tweets from the most powerful world leader. This is – to date – a unique situation. Many other world leaders and politicians use social media but don’t have the same power to influence markets. Trump wasn’t the first president to take to Twitter (former president Barack Obama first used it to address the electorate directly). But Trump has proven the extensive reach of a social platform – and this is something we should keep in mind. Sustainable Development Goals (SDGs) Learn more about earning an MSc in Business and Finance at Warwick Business School
“Trump’s tweets about trade and the economic outlook reduced market volatility”
– within a split second – to trade. The ethics of a leader possessing the ability to drive the market in what’s arguably the most important security in the world is for political scientists to argue over, and many will see this as a dangerous level of power.
Warwick Business School | wbs.ac.uk
wbs.ac.uk | Warwick Business School
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