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SOM: Investor Confidence Sliding
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Business New Haven
9/16/2002
By: BNH
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NEW HAVEN - The stock market is down 20 percent since the beginning of 2002 (as measured by the Standard & Poors 500), and the Yale School of Management (SOM) “Stock Market Confidence Indexes” directed by Robert Shiller, author of the bestseller Irrational Exuberance, show that individual and institutional investor confidence is steadily sliding.
According to Shiller:
• “Buy-on-dips” confidence has dropped sharply in the last seven months. There is significantly less confidence in the resilience of the market, and this may help to explain the market's decline. People will be less inclined to hold stocks if they think that they are less assured to hold value.
• The “One-Year Confidence Index” appears to be sliding, Shiller notes, but is still at a relatively high level. The One-Year Confidence Index shows, both for individual and institutional investors, that nearly 86 percent of investors expect the market to rise in the succeeding 12 months.
• The “Crash Confidence Index” is also down. Investors increasingly worry that a 1987-style market crash may be mounting.
• The “Valuation Confidence Index” is up for both individual and institutional investors. After the fall in stock prices, confidence in the market is close to historical averages.
According to Shiller: “Most significant about the new data is that the Buy-on-Dips Confidence Index has slid a lot since the last measurement period. This means that people are reasonably confident in the value of the market, but are not as confident that it will rebound or will not crash. The data also suggests that Americans are not sure about the short run.”
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