The Market Fever Index – issue 3

First, allow me to apologise for the delay in publishing this. I have been pondering comments I have received in response to previous blog entries and, in particular, to this comment:

"Shiller from Yale University is a pioneer in behavioural financial research and has produced a range of investor confidence indices available through his homepage, but a fever index could provide another potentially valuable perspective.

Fever and risk are quite different things and it is important to distinguish between them, with statistical measures of dispersion like standard deviation commonly being used to measure volatility and imply uncertainty or risk.

The world’s leading benchmark of financial market uncertainty is the Chicago Board Options Exchange’s VIX volatily (sic) index, which calculates volatility from the prices of a basket of S&P500 index options, option price depending upon expected volatility in the price of the embedded financial instrument because it increases the potential gain (or loss).

Random sampling is important for drawing unbiased inferences about a population like stock market fever and an idea that comes to mind for achieving this is to sample a range of periods from each search engine, allocate identifiers to the data, throw ’em into a hat, shake it up and draw your research sample and including other statistics like error estimates may improve the profile of fever you build, improving it’s (sic) value."

As implied here, what I am trying to do is different from the kind of technical analysis that is produced for the cognoscenti. I am keen to develop something that is meaningful and usable by anyone with a modicum of intellect and good sense. The mechanism proposes in the last paragraph is attractive as a means of increasing the validity of the Market Fever Index. Any other views?

Meanwhile, here is where we are this month using the present, unsophisticated method I have used previously: the index stands at 122 (2273 items, with 2065 in the previous month and 1939 items originally).

Patrick Callioni is a former senior public servant, with the Queensland and Australian Governments, and is now the Managing Director of consulting company, Enterprise Intelligence Pty Ltd, which specialises in helping business to do business with government and vice-versa. His book Compliance Regulation and Financial Services is available at Amazon

www.enterpriseintelligence.net.au