Chapter 9: Sentiment Surveys – The NAHB Index With a Special Focus on the Subprime Crisis

The premise behind the importance of market sentiment in asset pricing is that economic agents (entrepreneurs, consumers and other market participants) form their perceptions based on available information, but also on their expectations. The latter, however, can hardly be explained by fundamental economic factors. As seen in the previous parts it is quite striking that sentiment indicators play a major role in most of the sectors presented – the business surveys for the manufacturing and service sectors even play first fiddle here! But in the US also the consumer surveys in the area of consumption and the NAHB index for the real estate market stand out as interesting ‘admixtures’ to the hard facts. But is it only an ‘admixture’ or do the survey results not even offer much more than the fundamentals? In fact, this seems to be the case, firstly because the surveys have leading characteristics, secondly because they are announced earlier and thirdly because they involve fewer statistical problems (assignment problems, scope, etc.). It is also evident that in China, Japan and Europe the most important economic indicators, apart from GDP growth, are almost without exception ‘only’ sentiment indicators. Globally active financial market participants therefore seem to concentrate primarily on the leading sentiment indicators when it comes to the expected trends in the countries outside the USA. Therefore, to get an estimate of growth trends for the next one to six months, a look at sentiment surveys is the measure of all things (Benhabib & Spiegel, 2019). It can be shown that the ISM^® PMI subcomponents offer good insight into the expected path of other indicators. A special focus should be on a special national sentiment indicator, for a unique sector: The NAHB index tend to offer good insight into the well-being of the real estate market.