November’s climb continued a trend seen throughout much of 2003, with confidence rising from a level of 87.2 at the beginning of the year, and follows on a 1.7 point increase in October from September’s 102.5 level (See Institutional Investor Confidence Up in October ).
The index, developed by Harvard Professor Ken Froot and State Street Associates Director Paul O’Connell, is based on financial theory that assigns a 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. In November, the Index showsthat institutional investors continue to be upbeat about the economic environment, although their enthusiasm has moderated somewhat in the recent month.
“Institutional investors were somewhat more discriminating in their attitude to risk this month,” said Froot . “During that time, we saw relatively larger fluctuations in their appetite to hold risky assets. However, the buying of these assets ended the period on a strong note, pushing our index to a new high for the year.”
Because the index is a quantitative measure of the investment behavior of thousands of institutional investors, it is not directly tied to good or bad news, or to the price of stocks, bonds or other assets so it can more easily help measure investor sentiment, according to a press release. The index was launched in September 2003 (See State Street Associates Unveils Institutional Confidence Measure ).