One-Year Confidence Index
Confidence that the stock market will go up in the succeeding year rose fairly steadily over the years from 1989 to 2004, both for institutional and for individual investors. At the peak of One-Year Confidence, as of December 2003, 92.52% of institutional investors expected the market to go up over the succeeding year, and as of January 2004 95.62% of individual investors thought the same. After that, there was a brief moment of high confidence among institutional investors in 2006. Individual investor confidence bottomed in April 2008, just before the subprime crisis, and, surprisingly, improved with as the crisis worsened.
Buy-on-Dips Confidence Index
Confidence that the stock market will rise the day after a sharp fall showed an overall uptrend over the years from 1989 until shortly after it became clear that the 2000 peak in the market was a major turning point. Buy-On-Dips Confidence peaked at 71.93% as of July 2001 for institutional investors and at 76.65% as of March 2002 for individual investors. Between 2002 and 2006 Buy-On-Dips Confidence was often falling, but did not establish a clear trend. Buy-On-Dips Confidence was low just before the subprime crisis which began in the summer of 2007, and was only strengthened by the unraveling of events in 2008.
Crash Confidence Index
Confidence that there will be no stock market crash in the succeeding six months generally declined (though with a lot of ups and downs) over the years since 1989 until the stock market bottomed out in late 2002. Just after the terrorist attacks of September 11, 2001, Crash Confidence actually rose a little. But Crash Confidence reached its lowest point at 20.79% for institutional investors and 28.95% for individual investors as of November 2002. Crash confidence reached its all-time low, both for individual and institutional investors, in early 2009, just months after the Lehman crisis, reflecting the turmoil in the credit markets and the strong depression fears generated by that event, and is plausibly related to the very low stock market valutions then. The recovery of crash confidence starting in 2009 mirrors the strong recovery in the stock market.
Valuation Confidence Index
Confidence in the valuation of the market trended downward for both individual and institutional investors between 1989 and 1999. The extreme low in Valuation Confidence was reached in 1999 (29.03% for institutional investors and 31.17% for individual investors), our last survey before the peak in the stock market in 2000, and this may have been a significant source of downward instability in the market that helped bring on the market crash after 2000. This downtrend in confidence was reversed after the peak in the stock market in early 2000, and confidence was soon back to levels typical of the 1990s. After the 2000 crash in the stock market, and until around the October 2002 post-peak low in the market, Valuation Confidence rose rapidly. Valuation confidence reached 79.85% as of October 2003 for institutional investors and 78.92% as of January 2003 for individual investors. Valuation confidence reached a peak around market lows shortly after the Lehman crisis in late 2008, but dropped sharply as the market catapulted upwards into after spring 2009, both for individual and institutional investors.
Questions & Methodology
Issues in Constructing Confidence Indices
Confidence in the stock market is much harder to pin down than is consumer confidence, since the judgments people make about the stock market are among the most involved of any that they must make. People interested in the stock market of course tend often to view themselves as playing a game against other stock market investors, trying to guess when stocks will do well before others do, so that they can profit from this knowledge. Many people who follow the stock market watch the numbers every day, and many popular magazines, television, and radio shows follow the stock market closely. Thus, there is likely to be more complexity to people’s views about the stock market than there is about their decisions whether to save more now or whether to buy a new sofa, which consumer confidence indexes emphasize.
It should also be recognized that investor confidence is only one of many forces on the market. Stock prices are of course determined by supply and demand, and there are numerous factors that affect these, fundamental factors, legal, tax-related, demographic, technological, international, as well as other psychological factors related to attention, regret, anchoring, and availability. Indexes of stock market confidence can only play a supportive role in trying to understand market events.
There are two kinds of samples, a sample of wealthy individual investors, and a sample of institutional investors.
The sample of US individual investors from 1989 to 1998 was purchased from W. S. Ponton, Inc., a list of "High-Grade Multi-Investors." Starting in 1999, the sample was a random sample of high-income Americans purchased from Survey Sampling, Inc.
The US institutional investors have been sampled in each survey from the investment managers section of the Money Market Directory of Pension Funds and Their Investment Managers.
Surveys were initially conducted at six-month intervals. Starting in July 2001, for the US surveys we report monthly six-month average of monthly surveys. Thus, for example, the number for January 2002 is an average of results from surveys between August 2001 and January 2002. Sample size has averaged a little over one hundred per six-month interval since the beginnings of the surveys. This means that standard errors are typically plus or minus five percentage points. Standard errors are shown here in the data tables on the index pages and can be displayed or hidden graphically by clicking on the "show / hide error bars" link near the top of each page.
Further discussion of the data are in Shiller 
Data collection in the past has been supported in part by grants from the U. S. National Science Foundation and from Case Shiller Weiss, Inc.
The Confidence Indices
The indices of investor confidence that we have derived do not all move in the same direction through time, or even approximately so. Forming a simple average of the different indices to produce one overall stock market confidence index would thus be arbitrary. Instead, we report here four different investor confidence indices. Each is measured in percent, as percent of respondents who report holding a certain view. Each index is derived from the responses to a single question that has been asked consistently through time since 1989 to a consistent sample of respondents.
The four Investor Confidence Indices are reported here with the questions that were asked:
One-Year Confidence Index (View Chart)
The percent of the population expecting an increase in the Dow in the coming year.
How much of a change in percentage terms do you expect in the following
(use + before your number to indicate an expected increase, a - to
indicate an expected decrease, leave blanks where you do not know):
[FILL IN ONE NUMBER FOR EACH]
In 1 In 3 In 6 In 1 In 10
month months months year years
Dow Jones Industrial _____% _____% _____% _____% _____% Average
The One-Year Confidence Index is the percentage of respondents giving a number strictly greater than zero for "In 1 year." Note that the question is worded to mention the possibility that the respondent could predict a downturn, and so this question will obtain more such responses than more optimistically worded questions used by some other surveys. However, the issue is how the answers change through time, and the wording of the question has not been changed through time (except to add the 1-month and the ten-year categories, which were not on the earliest questionnaires).
Buy-On-Dips Confidence Index (View Chart)
The percent of the population expecting a rebound the next day should the market ever drop 3% in one day.
If the Dow dropped 3% tomorrow, I would guess that the day after tomorrow the Dow would:
1. Increase. Give percent:___________
2. Decrease. Give percent:___________
3. Stay the same.
4. No opinion.
The Buy-On-Dips Confidence Index is the number of respondents who choose 1 (increase) as a percent of those who chose 1, 2 or 3. This question was never changed over the twelve years.
Crash Confidence Index (View Chart)
The percent of the population who attach little probability to a stock market crash in the next-six months.
What do you think is the probability of a catastrophic stock market crash in
the U. S., like that of October 28, 1929 or October 19, 1987, in the next six
months, including the case that a crash occurred in the other countries and
spreads to the U. S.? (An answer of 0% means that it cannot happen, an answer
of 100% means it is sure to happen.)
Probability in U. S.:_______________%
The Crash Confidence Index is the percentage of respondents who think that the probability is less than 10%. There were slight wording changes in this question, but inessential.
Valuation Confidence Index (View Chart)
The percent of the population who think that the market is not too high.
Stock prices in the United States, when compared with measures of true fundamental
value or sensible investment value, are:
[CIRCLE ONE NUMBER]
1. Too low. 2. Too high. 3. About right. 4. Do not know.
The Valuation Confidence Index is the number who choose 1 Too Low) or 3 (About right) as a percentage of those who choose 1, 2, or 3. The wording of this question was never changed, and it was always the first question on the questionnaire.
Yale School of Management Stock Market Confidence Indexes™
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