• While the stock market as a whole has been creating enormous wealth, market timing and single stock picking are essentially zero-sum games.
• Investors' evaluation of chances and risks available in the market at any given point in time is, therefore, a function not only of economic circumstances but also of their assessment of other investors' views.
• One approach to capturing these views is the stock market confidence indices published by the Yale School of Management. We have therefore analysed these indicators to identify quantifiable relationships between investors' market sentiment and fundamental, macroeconomic and market-internal figures.
• Our findings reveal statistically significant relations to a range of explanatory variables frequently observed by market participants and particularly highlight the importance of aggregate valuation levels for investors' confidence in the market's ability to generate returns.
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Be it market timing or stock picking; active investors frequently see themselves participating in a game against other market participants. Naturally, we all would love to sell before everybody else heads for the exit or run strategies that benefit from some kind of common misperception or behavioural fallacy.
Understanding what others think and how the crowd ticks is a common starting point in this context. For over 30 years, Yale University has, therefore, been publishing four survey-based indicators illuminating different aspects of institutional and individual investors' evaluation of contemporary market conditions. We have studied these indices and regressed them against a range of potentially explanatory variables to analyse whether investors' views can be linked to macroeconomic, fundamental and intra-market indicators and whether investor sentiment has some ability to predict future returns.

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