Social Media, Market Regulation and CEO Influence: Lessons for Market Efficiency

Abstract

Social media communication has become increasingly influential in the stock market. Platforms such as X (formerly known as Twitter), Facebook, and Reddit serve as channels for corporate CEOs to share information, analysis, and opinions that can influence the stock prices of the companies they manage. The research this paper is based on tested whether it is possible to obtain abnormal stock trading returns by following Elon Musk’s tweets about Tesla. We studied ten years of Elon Musk’s tweets about Tesla, collecting data on 3,158 tweets and 2,420 stock trading days and identifying 33 events. We employed an event study methodology, utilizing the Five-Factor Model and the Capital Asset Pricing Model to estimate Tesla’s daily expected returns and assess the statistical significance of Tesla’s abnormal stock returns following Elon Musk’s tweets. We estimated abnormal returns over the event window and on the event day. We also estimated a logit regression on the ten-year sample period to assess whether the tweets caused aggregate abnormal returns. We conclude that Elon Musk’s tweets did not significantly impact Tesla’s stock price, suggesting that the market is informationally efficient and that, in recent years, it has not been possible to obtain abnormal returns by trading based on these tweets. Our methodological contribution is isolating tweet-related price reactions by excluding pre-event days, which are usually contaminated by fundamental information, and focusing exclusively on the effects of social media on stock price returns. We contribute to the literature on the relationship between social media and market efficiency, offering valuable insights for investors, regulators, and policymakers.