The Market Fever Index: Part 2

patrickcallioni | February 5, 2010

Last month I published the first iteration of the Market Fever Index (MFI).

 

In my forthcoming book, Waves of Change: Managing Global Trends in the Financial Services Industry, due out in May 2010, I suggest that it would be useful for investors, especially unsophisticated investors, to have access to a market fever index.

 

My proposal is based on the same logic that underpins bushfire warnings: to let people know that while they are free to invest as they please, they ought to be aware of the risk that is inherent in the environment.

 

It is almost impossible for retail i

nvestors to have any such awareness as things stand.

 

I am hypothesising that a useful indicator of risk would be the number of items that appear on the World Wide Web that refer to activity in the global financial markets. The underlying assumptions are that the number of items would be a suitable proxy for the level of activity and that investment bubbles are accompanied by a significant rise in activity.

 

I have just sampled the news reports on Google and there has been a rise in the number of articles that mention all three search terms: stocks, shares and bonds. The rise is such that the index now stands at 107.

 

I am now wondering whether it would be better to work with a broader sample, which could be generated by searching for news items that include any one of the search terms.

What do you think?

 

Meanwhile, those of you who track the US economy may find this blog interesting, anyone who is a member of LinkedIn can join the discussion.