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Fear And Greed Index

What is 'Fear And Greed Index'

An index developed and used by CNNMoney to measure the primary emotions that drive investors: fear and greed. The Fear and Greed Index is based on seven indicators:

1. Stock Price Momentum - as measured by the S&P 500 versus its 125-day moving average

2. Stock Price Strength - based on the number of stocks hitting 52-week highs versus those hitting 52-week lows on the NYSE

3. Stock Price Breadth - as measured by trading volumes in rising stocks against declining stocks.

4. Put and Call Options - based on the Put/Call ratio

5. Junk Bond Demand - as measured by the spread between yields on investment grade bonds and junk bonds

6. Market Volatility - as measured by the CBOE Volatility Index or VIX

7. Safe Haven Demand - based on the difference in returns for stocks versus Treasuries


Each of these seven indicators is measured on a scale from 0 to 100, with 50 denoting a neutral reading, and a higher reading signaling more greed. The index is then computed by taking an equal-weighted average of the seven indicators.

Explaining 'Fear And Greed Index'

The Fear and Greed Index is a contrarian index of sorts, which is based on the premise that excessive fear can result in stocks trading well below their intrinsic values, while unbridled greed can result in stocks being bid up far above what they should be worth.


The index can therefore be used to signal potential turning points in the equity markets. For example, the index sank to a low of 12 on Sept. 17, 2008, when the S&P 500 fell to a three-year low in the aftermath of the Lehman Brothers bankruptcy and the near-demise of insurance giant AIG. It traded over 90 in September 2012 as global equities rallied following the Federal Reserve's third round of quantitative easing (QE3).


Further Reading


Fear and greed in financial markets: A clinical study of day-traders
pubs.aeaweb.org [PDF]
… a significant decline of over 20 percent (for example, from 20 June to 23 July 2002, the S&P 500 Index dropped from … plan- ning, our results are consistent with the current neuroscientific evidence that automatic emo- tional responses such as fear and greed (eg, responses …

Fear and greed in global asset allocationFear and greed in global asset allocation
joi.pm-research.com [PDF]
… a significant decline of over 20 percent (for example, from 20 June to 23 July 2002, the S&P 500 Index dropped from … plan- ning, our results are consistent with the current neuroscientific evidence that automatic emo- tional responses such as fear and greed (eg, responses …

Investors''Fear'and 'Greed'Index: A case of India Volatility Index (IVIX)Investors''Fear'and 'Greed'Index: A case of India Volatility Index (IVIX)
papers.ssrn.com [PDF]
… a significant decline of over 20 percent (for example, from 20 June to 23 July 2002, the S&P 500 Index dropped from … plan- ning, our results are consistent with the current neuroscientific evidence that automatic emo- tional responses such as fear and greed (eg, responses …

Fear and greed: A returns-based trading strategy around earnings announcementsFear and greed: A returns-based trading strategy around earnings announcements
jpm.pm-research.com [PDF]
… a significant decline of over 20 percent (for example, from 20 June to 23 July 2002, the S&P 500 Index dropped from … plan- ning, our results are consistent with the current neuroscientific evidence that automatic emo- tional responses such as fear and greed (eg, responses …

Behavioral finance and investment strategyBehavioral finance and investment strategy
link.springer.com [PDF]
… a significant decline of over 20 percent (for example, from 20 June to 23 July 2002, the S&P 500 Index dropped from … plan- ning, our results are consistent with the current neuroscientific evidence that automatic emo- tional responses such as fear and greed (eg, responses …

The Influences of Greed And Fear on Fund PerformanceThe Influences of Greed And Fear on Fund Performance
papers.ssrn.com [PDF]
… a significant decline of over 20 percent (for example, from 20 June to 23 July 2002, the S&P 500 Index dropped from … plan- ning, our results are consistent with the current neuroscientific evidence that automatic emo- tional responses such as fear and greed (eg, responses …



Q&A About Fear And Greed Index


How does the fear and greed index work?

The fear and greed index measures investor sentiment by using changes in volume to determine if investors are buying or selling stocks.

Who created the Fear & Greed Index?

Marc Faber, who also created the Gloom Boom & Doom Report, developed this indicator.

How are the seven indicators measured on a scale from to 1, with 5 denoting a neutral reading, and a higher reading signaling more greed?

Each indicator is measured on a scale from to 1, with 5 denoting a neutral reading, and a higher reading signaling more greed.

What does the index show?

The index shows investor emotions that drive investors.

What do most experts agree on regarding buy-and-hold strategies?

Most experts agree that a buy-and-hold strategy is best for long term returns on portfolios.

Which of these indicators is not one of the seven?

Junk Bond Demand.

What does the Fear & Greed Index measure?

The Fear & Greed Index measures investor sentiment by using changes in volume to determine if investors are buying or selling stocks.

What does the index measure?

The Fear and Greed Index measures seven indicators.

What is the fear and greed index?

The fear and greed index is a measure of market sentiment.

When was it developed and used by CNNMoney for the first time?

It was developed in September 212 and used by CNNMoney for the first time in October 212.

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