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Measuring Bubble Expectations and Investor Confidence

This paper presents evidence on attitude changes among investors in the US stock market. Two basic attitudes are explored: bubble expectations and investor confidence. Semiannual time-series indicators of these attitudes are presented for US stock market institutional investors based on questionnaire survey results 1989-1998, from surveys that I have derived in collaboration with Fumiko Kon-Ya and Yoshiro Tsutsui. Five different time-series indicators whether there is among investors an expectation of a speculative bubble, an unstable situation with expectations for increase in the short run only, are produced. Four different time-series indicators whether there is an expectation of a negative speculative bubble are presented. Four different time-series indicators of investor confidence, that nothing can go wrong, are produced. Time-series variation for these indicators is significant, and cross correlations are generally positive. A bubble expectations index, a negative-bubble expectations index, and an investor confidence index are derived from these indicators. Behavior of the indicators and indexes through time is examined, and the indexes are compared with other economic variables. A notable finding is a degree of high-frequency fluctuation, semester to semester, in the indexes.

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File URL: http://cowles.econ.yale.edu/P/cd/d12a/d1212.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1212.

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Length: 25 pages
Date of creation: Mar 1999
Date of revision:
Publication status: Published in Journal of Psychology and Financial Markets (2000), 1(1): 49-60
Handle: RePEc:cwl:cwldpp:1212
Note: CFP 1004.
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Charles Lee & Andrei Shleifer & Richard Thaler, 1990. "Investor Sentiment and the Closed-End Fund Puzzle," NBER Working Papers 3465, National Bureau of Economic Research, Inc.
  2. Graham, John R. & Harvey, Campbell R., 1996. "Market timing ability and volatility implied in investment newsletters' asset allocation recommendations," Journal of Financial Economics, Elsevier, vol. 42(3), pages 397-421, November.
  3. Chen, Nai-fu & Kan, Raymond & Miller, Merton H, 1993. " Are the Discounts on Closed-End Funds a Sentiment Index?," Journal of Finance, American Finance Association, vol. 48(2), pages 795-800, June.
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