Investor Confidence Recedes on Fears of Higher Interest Rates According to Survey Results of The Yale School of Management Stock Market Confidence Indexes ™

New Haven, Conn.-May 25, 2004-Investor confidence has declined amid worries that the Fed will raise interest rates according to the latest survey results of The Yale School of Management Stock Market Confidence Indexes™.

Economist Robert J. Shiller, bestselling author of Irrational Exuberance, directs the Confidence Indexes, which are the longest-running survey of investor confidence and related attitudes in existence. Random samples of wealthy individual and institutional investors have been collected continuously since 1989. The consistent comparisons of survey results across four indices over time offer a unique overview of investor sentiment.

"The most significant recent change in the survey is the decline in Crash Confidence, the percentage of investors who feel the market will not have a 1987-style crash in the next six months," said Shiller. "Worries about the Fed raising interest rates have surfaced and raised the specter of a sharp decline in the market. It would appear that interest rates are at a major turning point, about to go up after a long period of steady low values, quite possibly at the next Federal Reserve Open Market Committee Meeting in June. Major turning points for interest rates can spell trouble for the stock market and people worry about this."

Overall, three of the four measures of stock market confidence showed declines. In addition to decreased confidence that the market will not crash (Crash Confidence Index), the percentage of investors who believe the stock market will go up in the next year (One-Year Confidence Index) and who believe the market is not overvalued (Valuation Confidence Index), also fell.

Crash Confidence Index: Approximately 37 percent of individual investors and 35 percent of institutional investors attach little probability to a stock market crash in the next six months. Crash Confidence was quite high when the market was soaring up from its bottom in March 2003; it peaked in late 2003. Since then, worries of a market crash have increased with the fear of higher interest rates.

One-Year Confidence Index: Approximately 88 percent of individual investors and 84 percent of institutional investors expect an increase in the Dow in the coming year, down from approximately 93 percent of individual investors and 91 percent of institutional investors six months earlier.
Valuation Confidence Index: Approximately 64 percent of individual investors and 70 percent of institutional investors believe the market is not valued too high, down from approximately 67 percent of individual investors and 79 percent of institutional investors six months earlier.

Buy-On-Dips Confidence Index is on the rise for institutional investors and in decline for individual investors. Approximately 67 percent of institutional investors and 64 percent of individual investors expect the market to rebound the next day should the market ever drop 3 percent in one day, compared to approximately 54 percent of institutional investors and 68 percent of individual investors six months earlier.

Data Collection

Data for The Yale School of Management Stock Market Confidence Indexes™ are collected on 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 100 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.

About Robert Shiller

Robert J. Shiller is a Faculty Fellow at the Yale School of Management's International Center for Finance and is co-director of its behavioral finance program. He is also the Stanley B. Resor Professor of Economics at the Cowles Foundation for Research in Economics at Yale University. He is the bestselling author of The New Financial Order and Irrational Exuberance.

About the International Center for Finance

The International Center for Finance at the Yale School of Management (ICF) is a leading research institute that brings together scholars from throughout Yale University to examine the critical issues facing the global financial community today.

Media contact: Tabitha Wilde, Associate Director of Media Relations: 203-432-6010; tabitha.wilde@yale.edu.