This project explores variables that may affect investor confidence in the stock market. Understanding what drives investor confidence in markets can be useful for both institutions and individuals when considering how to react to and cope with the increasing financial volatility of modern financial markets. The hypothesis that economic variables are determinants of investor confidence is tested using a multivariate regression model spanning 1989-present. The measure of investor confidence employed is based on a survey conducted by Yale professor Dr. Robert Shiller. This paper demonstrates that at a basic level, measures such as company earnings and P/E ratio are more significant predictors of markets in the long term, while measures of consumer sentiment and number of initial public offerings are more significant in the short term. This research suggests therefore that more intangible measures such as consumer sentiment are useful predictors in the short run, but exhibit a declining effect as the investing horizon is lengthened.
Yox, Paul, "Measuring Determinants of Investor Confidence through Time: A Regression Analysis" (2013). Symposium on Undergraduate Research and Creative Expression (SOURCE). 223.