The Yale School of Management conducts a number of sentiment surveys each month on individual and institutional investors. One of the surveys asks, "How confident are you that there will be NO stock market crash in the next six months?" The Crash Confidence Index is the percentage of respondents from this survey who think that the probability of a crash is less than 10%.
Below we chart the historical levels of the individual and institutional Crash Confidence Indices. As shown, the Crash Confidence Index for individual investors made its most recent peak in April 2006, meaning that was the point when the highest percentage of respondents thought that the probability of a stock market crash was less than 10%. From there the index drifted lower and lower (as the market headed lower and lower) until it reached its all-time low in March 2009, which coincides with the low of the last bear market. A similar pattern exists for the Crash Confidence Index for institutional investors. What is intriguing, however, is what the Crash Confidence indices have done since hitting their lows in early 2009.