Speculation Index
What it is:
The speculation index measures the volume of trades on the American Stock Exchange (AMEX) versus trade volume on the New York Stock Exchange (NYSE).
How it works (Example):
The AMEX tends to list riskier stocks issued by smaller companies that are starting up or are trying to grow. By comparing volume on the AMEX versus that on the NYSE (which tends to list larger, well-established companies), the speculation index can provide insight into how much risk investors are taking on. In this respect, higher ratios are associated with higher levels of speculation, whereas lower ratios generally indicate that investors wish to stay with lower-risk investments.
Why it Matters:
Speculative investment occurs at collectively high levels when there is a generally bullish market sentiment. For this reason, when the speculation index reaches unusually high levels, many analysts and investors believe that it signals the end of an upward trend.
