The Market Investment Sentiment Index
The Market Investment Sentiment Index (MISI) is a market-based measure of investor sentiment for 30 of the largest and most widely held public companies in the United States. The MISI follows 30 firms in the Dow Jones Industry Average Index (DJIA). Daily returns for each of the securities in the DJIA and the average standard deviation of daily returns over the previous five days (the "historic volatility") are computed. The MISI is constructed daily for every trading day in the month, using a correlation of the ranking of daily returns and the ranking of historic volatility.
The MISI can range from a low of -100 to a high of +100. For values between -10 to +10 the market is classified as risk-neutral, for values between -10 and -30 the market is labeled moderately risk-averse, and for values less than -30 the market is considered highly risk-averse. Similarly, if MISI falls between +10 and +30, the market is labeled moderately risk-seeking, and if the index exceeds +30, the market is considered highly risk-seeking.
Movements in the MISI capture both positive and negative news concerning the economy. Also, changes in the MISI closely replicate changes in the S&P 500. The MISI and the S&P 500 return for the same trading day has, on average, a significant correlation coefficient of about seventy-five percent.