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Robert Shiller created an index that shows investors’ fear of a stock market crash. Here’s what it’s saying now

Investing 2023

A sizeable majority of individual investors are worried about a possible U.S. stock market crash — and that’s bullish. That’s because crash anxiety is a contrarian indicator. It would be a bad sign if investors were confident that a crash would not occur. So we can take at least some solace from the current widespread worry about a possible crash.


We’re able to study the relationship between the stock market and crash anxiety because of a monthly survey of investors that Yale University finance professor Robert Shiller has been conducting since 2001. One question the survey asks: “What do you think is the probability 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?”


Shiller expresses the results as the percentage of respondents who believe this probability is less than 10%. Currently, as you can see in the chart below, 22.8% of individual investors believe this probability is that low. The only other times since 2001 when this percentage got any lower was at the bottom of the 2007-2009 and 2011 bear markets. Those certainly are bullish precedents.

You might wonder if crash anxiety is so high because it’s October, the month of the two worst crashes in U.S. history. But that can’t explain it. The latest reading is lower than all but three Octobers since 2001.


To appreciate the strength of this contrarian indicator, consider the data in the table below. It contrasts the average S&P 500 SPX, -0.92% total real-return in the wake of either the 10% of months when crash anxiety was highest or the decile when that anxiety was lowest. The differences are significant at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine.