Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director Paul O’Connell, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.
"Globally, confidence improved somewhat, though this masks some regional variation," commented Froot. "Despite the market turmoil of the recent weeks, particularly in the financial sector, institutional investors perceive some value at current price levels, and their willingness to take risk to capture that value continues to improve from its December lows."
"After witnessing some significant regional disparities over the last year, this month we saw convergence across regions," added O’Connell. "North American investors were the first to turn pessimistic during the current cycle, and their risk appetite fell steeply in the fourth quarter of 2007. It wasn’t until the second quarter of 2008 that European and Asian investors turned pessimistic, a period when North American confidence began to recover. With this month’s slight decline in North America coupled with a rebound in confidence in both Europe and Asia, investors are more in alignment globally than they have been for some time."
