### About the Indices

## 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.

## Data

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. In recent years, the sample of individual and institutional investors is purchased from InfoUSA (Data Axle).

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 2018 is an average of results from surveys between August 2017 and January 2018. 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. Further discussion of the data are in Shiller [2000][1].

Data collection is supported by Andrew Redleaf of Lynne and Andrew Redleaf Foundation (previously Whitebox Advisors). 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.

## Note

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 follows.

### U.S. One-Year Confidence Index

## Question & Calculation:

**Question**

How much of a change in percentage terms do you expect in the following (use + before your number to indicate an expected increase, or - to indicate an expected decrease, leave blanks where you do not know).

- 1 month
- in 3 months
- in 6 months
- in 1 year
- in 10 years

**Calculation:**

The percent of the population expecting an increase in the Dow in the coming year. 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).

### U.S. Crash Confidence Index

## Question & Calculation:

**Question:**

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.)

**Calculation:**

The percent of the population who attach little probability to a stock market crash in the next six months. The *Crash Confidence Index* is the percentage of respondents who think that the probability is strictly less than 10%. There were slight wording changes in this question, but inessential.

### U.S. Buy-on-Dips Confidence Index

## Question & Calculation:

**Question:**

If the Dow dropped 3% tomorrow, I would guess that the day after tomorrow the Dow would: [Circle 1, 2, 3, or 4]

- Increase Give percent: ---%
- Decrease Give percent: ---%
- Stay the same
- No opinion

**Calculation:**

The percent of the population expecting a rebound the next day should the market ever drop 3% in one day. 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.

### U.S. Valuation Confidence Index

## Question & Calculation:

**Question:**

Stock prices in the United States, when compared with measures of true fundamental value or sensible investment value, area: [Circle 1, 2, 3, or 4]

- Too low
- Too high
- About right
- Do not know

**Calculation:**

The percent of the population who think that the market is not too high. The *Valuation Confidence Index* is the number of respondents 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.

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#### Yale School of Management Stock Market Confidence Indexes™

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