State Street Global Markets released today the results of the State Street Investor Confidence Index for December 2006.

According to the December index, investor confidence increased by 5.2 to 87.4 from November’s revised reading of 82.2. Looking regionally, the confidence of North American institutional investors rose strongly from 90.7 to 97.8. The confidence of European investors rose from 90.2 to 99.1, while the confidence of Asian investors dipped to 93.5 from 99.7 the previous month.

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, the State Street Investor Confidence Index measures investor confidence on a quantitative basis, analyzing actual buying and selling patterns of institutional investors. The index is based on financial theory that assigns precise meaning to changes in investor risk sentiment, or the willingness of investors to hold proportionally more or less of their portfolio in equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

“Investors were in a more upbeat mood this month, as U.S. policy-makers confirmed market expectations regarding U.S. growth and inflation, and volatility remained at or near record lows,” said Froot. “Globally, investors increased their allocations to equities in the U.S., Japan and a number of European markets.”

“The strong trend upwards in European Investor Confidence remained intact this month,” added O’Connell. “Asian investor confidence, however, took a pause after eight consecutive monthly increases, as investors in that region reduced their allocations to a number of equity markets, notably Australia.”