Donald Trump, investor attention and financial markets

Abstract

Information attracts attention but attention is costly. Social media has been at the forefront ofinformation 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 effect on retail investors whose only source of information is internet. We find that retail investor attention spike as indicated by surge in Google Search Volume Index following Donald Trump’s tweet, irrespective of the tone in the tweet. We also find that Trump’s tweet facilitates wealth transfer due to selling from the retail investors followed by buying by the institutional investors in low retail investor attention environment. Finally, we see no effect in intra-day returns for the stocks irrespective of the attention they are receiving.