Börse Frankfurt Sentiment Index - the sentiment survey on DAX shares

The Börse Frankfurt Sentiment Index has a long tradition. The stock exchange has been asking investors about their market expectations on a weekly basis since 2001. The aim of the survey is to bring transparency to the market and to point out possible imbalances. Assumptions about investor behaviour from behavioural economics, which deals with human behaviour in economic situations, help here.

This branch of economic analysis is based on the assumption that investors rarely act rationally. They form an emotional bond with their possessions, and this also applies to their financial commitments. According to behavioural economists, this leads to strong loss aversion. Investors do not perceive book losses as losses and prefer to hold on to securities positions in the red instead of continuing to realise the accumulated book losses. As a result, news and other information about the markets are paid more attention to if they support one's own market expectations, while information to the contrary is ignored. This cognitive bias, in combination with strong emotional states such as greed or panic, leads to herd behaviour and can result in extreme market situations.

But these assumptions also help to explain individual market movements in the everyday ups and downs of the stock market.
The Sentiment Index is based on the assessments of institutional and active private investors. They are asked once a week by the Frankfurt Stock Exchange whether the DAX will rise, fall or move sideways in the following four weeks.

About 900 investors take part in the survey, of which about 300 are institutional investors, i.e. fund managers, asset managers, proprietary traders or asset managers, and about 600 are private investors. This covers a large part of the local demand for German equities on the part of institutional investors.

Active investors

The special feature of the Börse Frankfurt Sentiment Index is that only investors who are active in the market participate in the survey. In contrast to analysts, these market participants have both a psychological and a material bond - a commitment - to their investments.

The time period surveyed is not decisive, only the direction counts. For investors' assessments are usually a mirror of their positions. Someone who has bought shares hardly gives a negative forecast about his securities. Another who has just reduced his holdings does not express optimism.

Most participants have a medium-term investment horizon, the number of very short-term traders is limited.

The zero line between optimism and pessimism

For the Börse Frankfurt Sentiment Index, the optimists who have expressed bullish views - "the DAX is rising" - are contrasted with the pessimistic bears - "the DAX is falling" - and weighted with the neutrally minded, who mostly do not hold any commitments. This allows the sentiment index to be expressed in points. Values above zero indicate a bullish market, values below zero a bearish one.

The sentiment index often functions as a contra-indicator: if investors are too bullish, there is no demand to support a consolidation on the downside and no follow-up demand for further price increases on the upside, as investors are already largely invested. If the market is too bearish and prices rise, investors run the risk, in the more harmless case, of having to chase share prices, i.e. buying at higher prices. In the worse case, the pessimists fall into a bear trap, a short squeeze, in which they have to liquidate their short positions at a loss in order to limit their risk. This is also called closing out or covering.

Cost prices and skewed positions

Here, too, the art lies in the detail: on the one hand, the change in market sentiment in combination with the movements of the DAX is more meaningful than the absolute level. The well-known behavioural economist Joachim Goldberg analyses the results of the survey and can derive purchase prices over time and thus also whether market participants are in profit or loss.

Important: Regular participation

Surveying as many of the same investors as possible on a weekly basis is therefore an essential prerequisite for stable results. Therefore, each individual survey must include the response of at least 80 percent of the participating institutional investors. The results of each survey are passed on anonymously to Joachim Goldberg, who evaluates the figures immediately.

The votes of the market participants are equally weighted, regardless of their financial commitment.

The current analysis of market sentiment can be found every Wednesday from 5 p.m. on boerse-frankfurt.de/sentiment.

Analyses and methods

• Survey rules of the DAX-Sentiment
• Website of Joachim Goldberg
• Backt to overview