State Street Global Markets has released the results of its Investor Confidence Index for June 2005. According to the June index, investor confidence increased by 3.1 points from May’s revised reading of 81.4.
Developed by Harvard University professor Ken Froot and Paul O’Connell of State Street Associates, the research unit of State Street Global Markets, the index measures investor confidence on a quantitative basis, analyzing actual buying and selling patterns of institutional investors. The index is based on the financial theory that assigns precise meaning to changes in investor risk sentiment, or the willingness of investors to hold proportionally more or less of their portfolio in higher-risk investments.
“Investor confidence moved upward this month, with U.S. investors feeling a notable increase in their risk appetite for risky investments around the world,” commented Froot. “Confidence remains below the levels seen earlier this year. Nevertheless, after two consecutive months of substantial institutional winnowing, investors now seem willing to take on additional risk at prices they now find relatively attractive.”
“Investors around the world are now buying U.S. equities at a consistent, though measured, rate,” added O’Connell. “This upward move in institutions’ willingness to take risk across their portfolios – especially in the U.S. – is probably more due to investor sentiment than to actual improvements in fundamentals. In the U.S., for example, we have seen interest rates and inflation remain low, but activity measures in the major developed economies have slowed slightly.”