State Street Global Markets today released the results of the State Street Investor Confidence Index for August 2007.

Global investor confidence rose by 13 points to a level of 99.3. Leading the way were North American institutional investors, whose risk appetite rose by a full 21 points to 116.5.

In Europe, by contrast, investors consolidated the pullback they began last month, and confidence fell 4 points to 86.4. Asian investors remained in a holding pattern, and their confidence level exhibited only a small increase from 83.5 to 84.1.

Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director Paul O’Connell, index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

“Given the recent market dislocation stemming from the sub-prime mortgage crisis, this month’s Investor Confidence readings may seem paradoxical,” said Froot, in a release. “They appear less so, however, once it is remembered that for every seller, there is a buyer. Many market participants sold heavily over the past fortnight, but institutional investors were not among them. Instead, they took the other side of the trade, and accumulated assets at relatively attractive price levels across a broad cross-section of markets.”

“It is interesting to note that North American investors were net sellers of equities in early July,” added O’Connell. “Their allocation decisions in August have allowed them to reacquire assets at much more attractive prices than those which prevailed in July. Indeed, State Street’s measures of equity flows show that institutional investors have been steady buyers of equities since July 23, when the market turbulence began.”