‘Crash Risk’: Something Doesn’t Add Up Here

Earlier today, we brought you the following chart which certainly seems to suggest that “groupthink” has taken hold in markets – and “bigly”:

Yale

So according to Yale’s one-year investor confidence indices both the “smart” money and the “dumb” money are now 100% confident that nothing can go wrong (basically – the individual survey is at 98.92).

Well that prompted us to take a look at the “Crash Confidence Index, which as Yale explains, is “the percent of the population who attach little probability to a stock market crash in the next-six months.”

They clarify further: “The Crash Confidence Index is the percentage of respondents who think that the probability is less than 10%.

Ok, so it turns out the latest reading on that for institutions is 29.55%. Or, put differently, less than 1/3 of institutional respondents are willing to say that the risk of a stock market crash is less than 10%.

Meanwhile, the cost of protecting against a crash remains elevated after hitting an all-time high in March.

CrashVsSkew

So let me get this straight…

100% of institutional respondents gave a number greater than zero when asked how much of a change in percentage terms they expect for the Dow in 1-year, but only 29.55% were willing to say that the chances of a “catastrophic stock market crash in the U.S., like that of October 28, 1929 or October 19, 1987, in the next six months” was less than 10%.

And meanwhile, the cost of protecting against just such a “catastrophic stock market crash” remains elevated.

Something doesn’t add up there.

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2 thoughts on “‘Crash Risk’: Something Doesn’t Add Up Here

  1. As the fly said “help me, help me.”. Let me think about the 70.45% who now think that there is a 90% chance of an event in the next six months. If so, then it explains the rising cost of protection. I plan to move to cash on a carefully deliberate basis in as sensible manner as I can.

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