The index, based on financial theory of risk appetite, analyzes the buying and selling patterns of institutional investors. The greater institutional investors equity exposure, the greater their risk appetite, or confidence.
This month, we saw a dramatic and unprecedented decline in investor confidence to a new record low, led by investors in North America, said Harvard University Professor Ken Froot, one of the creators of the index.
"We saw broad and important reductions of risk across investor portfolios previously at times like the Asian Crisis in 1997 and the Russian-LTCM crisis in 1998. However, even the strong broad-based selling of risk we saw during those events appears small compared with the current outflows. [This is] the largest single reallocation away from risky assets that we have witnessed in the data since it first became available in 1994," Froot said.
