Honors Theses and Capstones

Date of Award

Spring 2018

Project Type

Senior Honors Thesis

College or School

PAUL

Department

Accounting and Finance; Economics

Program or Major

Economics

Degree Name

Bachelor of Science

First Advisor

Jay Horvath

Abstract

When President Trump tweets, does it change uncertainty in the economy? This study gathers President Trump’s tweets off his twitter accounts from October 2016 to October 2017 and classifies each of them as either negative (expected to increase uncertainty), positive (expected to decrease uncertainty) or neutral (no effect expected on uncertainty). I find that tweets with a negative sentiment were followed by an increase in uncertainty in the VIX and S&P 500 1 and 2 minutes after the tweet. Similar results were found for positive tweets. Non-neutral tweets increase trading volume in the VIX and S&P 500 by up to 200% in the hour following the tweet. Overall, this study finds that up to 2 minutes after the non-neutral tweet, investors appear to be trading based on the sentiment value of that tweet. However, after 2 minutes, investors trading strategies appear to veer away from tweet sentiment value, but trading volumes in these indices are still much higher than normal. Policy makers should be aware of this increased volatility stemming from the President’s unconventional twitter use and may suggest more conventional ways to spread new information to the financial markets.

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