In times of an increasingly digitalized world, behavioral changes in society do not spare high-ranking politicians and decision makers. In some cases, those changes in behavior can have unforeseen yet considerable consequences. By making use of the renowned event study methodology, this paper scrutinizes the impact of acting U.S. president Donald Trump’s Twitter activity on international stock markets. In particular, a select set of ten short messages posted in the context of the present US-China trade dispute is analyzed with regard to the U.S. American S&P 500, the Chinese Hang Seng Index (HSI) and the German DAX.
Highly significant market reactions, both positive and negative, are found for the HSI and the examined markets’ aggregate, while Trump’s native market showed the least responsiveness to his tweets. Apart from that, the obtained results suggest a fairly rapid processing of new information and thus adjustment of prices.
Ever since Donald Trump’s official inaugural address as the 45th president of the United States of America in January 2017, he has been cherishing a very polarizing and distinct way of leading the world’s largest economy compared to his more recent predecessors. That leadership style is not least characterized by his preferred yet – considering his position – rather uncommon way of communicating to the outside world, namely his extensive use of microblogging service Twitter for presidential announcements and commentaries of any nature. Amongst others, a particularly high activity can be observed
in conjunction with the rising political and economic tensions between the United States and China that have been intensifying over Trump’s course of presidency.
The dispute between the two economic superpowers – it comprises various topics such as the United States’ massive and long-standing trade deficit and alleged intellectual property theft – ultimately lead to the imposition of a series of mutual tariffs worth hundreds of billions of U.S. dollars. And while Trump regularly keeps his followers updated about his thoughts, claims and the statuses of trade negotiations, stock markets around the globe seem to react heavily to the developments of what is referred to as the US-China trade war. The question arises whether those unscheduled and seemingly impulsive short messages can be a causal explanation for recent stock market movements.
Table of Contents
List of figures
List of tables
List of abbreviations
List of symbols
1 Introduction
2 Literature review
2.1 Financial markets’ reaction to new information
2.2 The impact of macroeconomic announcements on U.S. stock markets
3 Event Study
3.1 Event Review - the US-China trade war
3.1.1 Emergence and sources of conflict
3.1.2 Development and imposed tariffs
3.2 Methodology and theoretical framework
3.2.1 Assumptions
3.2.2 Event definition and selection criteria
3.2.3 Event window, post-event window and estimation window
3.2.4 Expected return models and (cumulative) abnormal returns
3.2.5 Null hypothesis and statistical validation
3.3 Data description
4 Discussion of results
4.1 Events’ impacts on aggregated stock market valuations
4.2 Events’ impacts on stock markets on a country level
4.2.3 U.S. American stock market - S&P 500
4.2.4 Chinese stock market - Hang Seng Index
4.2.5 German stock market - DAX
4.3 Overview and conclusion
4.4 Quality of the study and limitations
5 Conclusion and areas of future research
Appendix A - U.S. trade in goods with China (2017-2019)
Appendix B - Selection, classification and listing of tweets
Appendix C - T-distribution table
Bibliography
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