Investopedia Anxiety Index


104.25

The current reading for the Investopedia Anxiety Index is above neutral, indicating a higher level of anxiety.

Today’s markets

Futures for US stocks are sharply lower this morning with the Dow Industrials down 1.46% or 500 points.

The National Association of Home Builders (NAHB) will release its housing market index for July at 10:00 am Economists expect the reading to remain at 81, the same level as in June. More than 36 companies will publish quarterly earnings reports today, including IBM and Prologis. Treasury yields are lower ahead of earnings and data release.

Oil futures are crashing after OPEC + struck a deal to increase production in response to rising prices, and after Baker Hughes reported that the total number of active oil rigs in the United States increased by 2 to 380 this week.

European markets traded lower after euro zone construction production rose 13.6% year-on-year in May. Asian markets were also lower.

What the index shows

The Investopedia Anxiety Index (IAI) is an indicator of investor sentiment based on the behavior of tens of millions of Investopedia readers around the world. A reading of 100 is considered “neutral”.

The IAI is driven by reader interest in Investopedia in three subject categories: macroeconomic (such as inflation and deflation), negative market sentiment (such as short selling and volatility), and debt / credit (such as default, creditworthiness and bankruptcy) . .

Background

In 2012, Seth Steven-Davidowitz published an article in The New York Times explaining how he used Google search results to uncover voter bias that pollsters couldn’t find. Investopedia has over 20 million unique monthly visitors, and with Steven-Davidowitz’s work in mind, we asked ourselves, “What can the search behavior of our readers tell us about the state of the markets and the economy?”

We have the data: 30,000+ quality content URLs before the Lehman Brothers collapse and 2008 financial crisis. Represented the editorial team and partnered with our lead data scientist, Dr. Ronnie Jansson, in late 2015 to look for patterns in our highest traffic materials. We carefully selected a selection of terms on topics that suggested investors fear, such as “default”, and opportunistic terms, such as “short sale.”

Finding a signal in noisy web traffic data is difficult due to the varied seasonality of our readers (e.g. decreased traffic during weekends) and exogenous factors such as search engine results page ranking (SERP). ). We first needed to develop a methodology to eliminate this noise and produce an index that robustly tracks the actual ebb and flow of interest in the chosen topics.

When we look at the results of the analysis for the first time, we find that the major spikes in the index occurred exactly where they would make sense: around major events like the collapse of Lehman Brothers (by far the most significant spike), the Greek crisis. debt crisis and the downgrading of the US credit rating by Standard and Poor’s.

In the final version of the IAI we used 12 definition pages, all with an exceptionally high pageview count. Now we also use several thousand more pages in the normalization procedure. In total, we used nearly 1 billion page views to produce the monthly IAI chart for more than 10 years.

We had set out to create a proxy or index for investor sentiment, but we needed an external benchmark. The Chicago Board of Options Exchange Volatility Index (VIX), often referred to as the “fear index,” is commonly used as an indicator of investor fear.We plotted the VIX alongside our new creation, and the results spoke for themselves:

Over a period of almost a decade, the large-scale characteristics are very similar in the VIX and IAI despite measuring different phenomena (stock market volatility and content consumption, respectively). It gets even more interesting when the two are layered on top of each other:

Perhaps the most compelling comparison is found at the earliest point in the plot. For more than a year before the peak of the financial crisis in September 2008, the IAI was deeply elevated (around 120 or so, a level that had not occurred in a single month in the last four years), while the VIX was it remained moderate, around 20. In other words, based on the VIX alone, the biggest financial crisis of our generation would catch you completely off guard, while the IAI was an alarm bell ringing for over a year before the crisis broke out.

www.investopedia.com

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Mark Holland

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