NEWS RELEASE, Yale School of Management

March 12, 2002

New Yale School of Management Stock Market Confidence Indexes Show
Individual and Institutional Investors’ Confidence “Unshaken” Despite
September 11th and Enron Debacle

New Haven, CT -- How confident are individual and institutional investors following the September 11th terrorist attacks and amid heightened doubts about the integrity of financial reporting sparked by Enron Corp.? A study from the Yale School of Management’s International Center for Finance announces four new indexes devised by Robert J. Shiller, a Faculty Fellow there. It shows that both individual and institutional investors’ confidence remains “unshaken.” Such resilient confidence, says Shiller, “is a powerful support for the market.”

Professor Shiller is the author of the best-selling book about the stock market, Irrational Exuberance. His newest research study, “The Yale School of Management Stock Market Confidence Indexes™,” represents the longest-running comprehensive effort to measure investor confidence and related investor attitudes in the world. Despite the stock market peak in 2000, subsequent down markets, and the terrorist attacks of September 11th, he observes that investor confidence has “rebounded” in all four categories measured. The new indexes include:

  • One-Year Confidence Index: The percent of the population expecting an increase in the Dow in the coming year.

  • Buy-On-Dips Confidence Index: The percent of the population expecting a rebound the next day should the market ever drop 3% in one day.

  • Crash Confidence Index: The percent of the population who attach little probability to a stock market crash in the next six months.

  • Valuation Confidence Index: The percent of the population who think that the market is not too high.

“Survey data is only interesting and telling if you could make consistent comparisons over a duration of time,” explained Professor Shiller. Under his supervision, a consistent number of high-income Americans and institutional investors were asked these questions periodically beginning in 1989 through the present to determine the current status of investor confidence in each of the four confidence indexes:

  • How much of a change in percentage terms do you expect to see in the Dow Jones Industrial Average for the next six months? One year? 10 years?

  • If the Dow dropped 3% tomorrow, how would the Dow move the day after tomorrow?

  • What do you think is the probability of a catastrophic stock market crash in the United States, like that of October 28, 1929 or October 19, 1987, in the next six months, including the case that a crash occurs in other countries and spreads to the States?

  • Stock prices in the United States, when compared with measures of true fundamental value or sensible investment value, are too low? Too high? Just right?

Shiller's Interpretation of Data

“The stock market peaked in early 2000 and there has been a much-discussed down market since then, especially with the NASDAQ index, but instead of harming investor confidence, the experience has led to a rebound in all four confidence areas measured. Also, the September 11th crisis did not produce any striking changes in any of the U.S. indexes. Confidence of individual investors remains roughly as high, if not higher, with the latest data than it was before September 11th. Among individual investors, Buy-On-Dips confidence and Valuation Confidence rose substantially after the terrorist attacks.These indexes suggest that perceived risk in the stock market is very low by historical standards. Individual investors have relatively little fear today that anything could go wrong with the stock market. This fact may help explain why U.S. stock prices are extremely high relative to earnings.”

Data Collection

Data for the Yale School of Management Stock Market Indexes™ are collected under Professor Shiller’s supervision at the Yale School of Management’s International Center for Finance. Surveys were initially conducted at six-month intervals. Starting in July 2001, for the U.S. surveys, he reports a monthly six-month average. For example, the number for January 2002 is an average of results from surveys between August 2001 and January 2002. Sample size has averaged a little over one hundred per six-month interval since the beginning of the surveys. This means that standard errors are typically plus or minus five percentage points. A parallel effort to sample Japanese investor attitudes has been undertaken since 1989 by Professor Yoshiro Tsutsui of Osaka University and Fumiko Kon-Ya of the Japan Securities Research Institute.

Biographical

Robert J. Shiller is a Faculty Fellow at the Yale School of Management’s International Center for Finance. He is also the Stanley B. Resor Professor of Economics at the Cowles Foundation for Research in Economics at Yale University. His latest book, Irrational Exuberance (Princeton University Press 2000, Broadway Books 2001), is an analysis and explication of the stock market boom since 1982. It won the Commonfund Prize in 2000 and was a New York Times nonfiction bestseller. He is currently working on his fifth book.

For an interview with Professor Shiller, contact Media Relations Director, Karin A. Nobile, at the Yale School of Management, (203) 432-6010 or karin.nobile@yale.edu. To access the Yale School of Management Stock Market Confidence Indexes and relative survey data, visit the Yale International Center for Finance website.