The State Street Investor Confidence Index(R) (ICI) for February 2013 rose 8.7 points to finish at 94.8, up from January's reading of 86.1. As was true last month, the increase was driven by North American institutions, whose confidence rose 13.9 points from January's level of 85.1 to reach 99.

European institutional investors also felt more optimistic pushing the index for that region up from a revised 89.4 in January to 92.2 in February. In contrast, risk appetite among Asian institutional investors declined by 4.5 points from a reading of 91 in January, settling at 85.5.

The State Street Investor Confidence Index was developed by Harvard University professor Kenneth Froot and Paul O'Connell of State Street Associates. It measures investor confidence or risk appetite quantitatively by analyzing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.

"In February, we saw continued demand on the part of institutional investors for equity securities," commented Froot. "Since reaching a record low in November, the appetite for risk has rebounded considerably. There are a number of risks on the horizon that may give investors pause, including US fiscal negotiations, the outcome of the Italian elections and the direction of Fed policy, so caution is warranted. That being said, it's fair to say that strong and persistent 'de-risking' by institutions that has characterized recent years has been suspended, at least for now."

"The pronounced increase in North American investor confidence is noteworthy, as it represents a 19-month high for that regional Index," added O'Connell. "The composition of flows that we have observed is also consistent with an increased appetite for risk, with institutions adding to equity positions in Japan, Europe ex-UK and the emerging markets. Confidence among Asian investors remains tepid, and this may well reflect question marks around whether growth in the region will be internally or externally driven going forward."