December’s climb continued a trend seen throughout much of 2003, with confidence rising from a level of 98 at the beginning of the year, and follows on a 1.2 point increase in November from October’s 105 level (See Institutional Investor Confidence Rises Again in November ).
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 shows that institutional investors continue to be upbeat about the economic environment, although their enthusiasm has moderated somewhat in the recent month.
“Institutional investors remain very focused on positive economic signals, and have this month become even more convinced we are returning to robust growth with low inflation,” said Froot. “This latest increase in risk appetite is the strongest we have seen in a very positive 2003, with nine of 12 months showing increases.”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 ).