Interesting Yale Confidence Indicators

The Yale School of Management has a number of stock market confidence indices that question US investors.  Recently, two of the confidence indices have been showing some interesting trends. 

The first chart below highlights historical results for Yale's One-Year Confidence Index.  The index surveys both institutional and individual investors for their confidence that the market will be up in the next year.  As shown, market confidence from individual investors has ticked lower and lower since 2004 and is currently just over 70%.  Institutional confidence peaked in mid-2006 and then fell significantly later that year.  In recent months, however, institutional confidence has picked up and a big divergence has been created between institutional and individual investors.  Hopefully the weak individual confidence and higher institutional confidence means a rally is coming soon.

Another index that the Yale School of Management conducts is Crash Confidence.  This survey asks institutional and individual investors for their confidence that there will not be a market crash in the next six months.  In the most recently monthly survey (June), confidence that there won't be a crash from individuals fell to its lowest level in the survey's history.  The prior low occurred in November 2002. 

 

Comments

[mark]

It appears that individuals have been more accurate, as the institutions have been getting more positive since October 2007, and individuals more negative. Maybe they felt the economic pain more quickly, and that is getting reflected in the market.

[Jody Wilson]

I agree with Mark. If I'm reading these graphs correctly, individuals were more optimistic from mid-2004 to mid-2005, and they were correct. Individuals also made the better call in late 2006.

The optimism of institutions rose to meet the individuals in early 2007, just when 1-year optimism became the wrong call!

More generally, I don't trust surveys like these. People and institutions aren't necessarily going to put their mouths where their moneys are. In fact, it might make sense for an institution to give opposite answers in a survey in order to confuse rivals.