State Street Global Markets released the results of the State Street Investor Confidence Index for August 2005.
According to the August index, investor confidence increased by 2 points from July’s revised reading of 82.8.
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.
“Institutional investors have been willing to add to the risk of their portfolios over the last month, as U.S. longer term interest rates continue to show resilience to short term rate increases by the Federal Reserve,” commented O’Connell. “Nevertheless, this increase is muted; confidence remains at relatively low levels, and investors clearly have reservations about becoming too extended.”
“While U.S. investors were adding to their portfolio wide risks, this month’s big increase in risk appetite comes from European investors,” added Froot. “Europeans seemed to have been unusually pessimistic in the last few months, and now have begun adding to risky positions broadly across their portfolios. However, this doesn’t change the fact that Europeans exhibit a level of confidence that remains substantially below that of Asian and North American institutional investors.”