Investor Confidence Index: Understanding its Relationship with Market Sentiment

Pessimism and the Confidence Index: Exploring the Connection

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Question

When investors are pessimistic about the market, the confidence index should have

Answers

A. a value over 100.

B. a low value.

C. a high value.

D. a value over 85.

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Explanations

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A. B. C. D.

The confidence index measures the yield spread between high-grade bonds and a large cross section of bonds. Technical analysts believe that during periods of low confidence, investors are less willing to invest in lower-quality bonds, thereby pushing up their yields, and decreasing the confidence index. A low index value is thus viewed as a bearish sign.

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