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State Street launches institutional index

GLOBAL - State Street Corp. has launched a monthly index that tracks global institutional investors' confidence.

The bank said the new State Street Investor Confidence Index "combines a model of global investor behaviour with information that tracks the common buying patterns of higher-risk investments by institutional investors around the world".

State Street said investor confidence was slightly down in September compared to August, though it is strong compared to the first half of the year.

"In September, the index fell 0.2 points to 103.4 from 103.6 in August, and is still well above the 96.4 average in the first half of the year. "

The index was developed by Ken Froot and Paul O'Connell of Massachusetts-based State Street subsidiary State Street Associates. Froot is a professor of business administration at Harvard University's Graduate School of Business and a senior partner at State Street Associates. O'Connell is a director at State Street Associates.

The index assigns 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.

The bank said that the more of their portfolios that institutional investors are willing to devote to more volatile investments, the greater their appetite for risk and the greater their confidence.

"Just as consumer confidence surveys aim to determine whether consumers are willing to spend money, our index sheds light on whether or not institutional investors are bullish enough to take on higher risk investments given economic fundamentals and market conditions,” O’Connell said.

The index is "an unbiased quantitative measure" of investor behaviour, State Street said, adding that it is not directly tied to good or bad news, or to the price of stocks, bonds or other assets.

"As such, the new index provides a solid and empirical foundation on which to measure investor confidence."

The new index will be published at 10 am Eastern Time in Boston on the second to last Tuesday of each month and released globally.

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