SAFE Working Paper No. 314

The President Reacts to News Channel of Government Communication

Studying about 1,200 economy-related tweets of President Trump, we establish

the “President reacts to news” channel of stock returns. Using high-frequency

identification of market movements and machine learning to classify the topics

and textual sentiment of tweets, we address the observed heterogeneity in the

aggregate stock market response to these messages. After controlling for market

trends preceding tweets, we find that 80% of tweets are reactive and predictable

rather than novel and informative. The exceptions are trade war tweets, where the

President has direct policy authority, and his tweets can reveal investable private

information or information about his policy function.