Figure 9 provides a graph of AMSI around the time of the credit crisis. At the end of May 2007, the AMSI reading was 63.1 (75th percentile), suggesting the market may have become too complacent. In this time frame, the subprime crisis was in the midst of unraveling. New Century Financial had declared bankruptcy the prior month, and Bear Stearns would follow the next month with a bailout of its mortgage-related investment funds. During the depths of the credit crisis, over the October 2008 to November 2008 time period, AMSI readings were at their lowest ever, indicating that extreme fear had set in and that it might be an appropriate time to increase risk despite rampant market apprehension. AMSI readings continued to be subdued throughout the first half of 2009 as the market searched for a support level near its lows. By the latter part of 2009, fear had largely left the market, and the surge in stock prices pushed AMSI well into the complacency or greed zone.
While, as noted earlier, there are a host of sentiment indicators, for this part of the discussion, we focus on VIX and the put-call ratio, two of the most widely followed indicators. Both, along with AMSI, indicated high levels of anxiety and fear near the depths of financial crises. However, AMSI signaled high levels of complacency or greed prior to the three financial crises as noted in Figure 10, while VIX and the put-call ratio provided mixed results.
A graph of the three sentiment indicators around specific time periods further illustrates how they differ. For illustration, we have chosen the period around the credit crisis, shown in Figure 11.