SAFE Manager Sentiment Index

How optimistic are Germany's top managers? The new SAFE Manager Sentiment Index sheds light on the optimism and willingness to invest, as well as the economic challenges seen by the top executives of companies listed in Germany.

The index identifies and counts negative and positive statements from management taken from quarterly and yearly financial reports and transcripts from analyst conferences of companies (earnings conference calls). In this way, it captures the level of optimism or pessimism in C-suites. The specific keywords used also provide an overview of which topics are currently of particular importance to managers.  

This approach can provide insights into the long-term development of stock returns and firms’ investment decisions. Research shows that managers can have overly extreme expectations, leading to sub-optimal investment decisions by companies.


The SAFE Manager Sentiment Index (as of January 2025)


How to read the index

If the value of the index is positive, optimism dominates. If the value is negative, the words considered negative in management communication dominate.

How does the index relate to financial markets?

An empirical analysis of the data from 2003 to 2024 for Germany shows that an increase in manager sentiment by one (standardized) unit is on average associated with 5.7 percent points lower stock market returns over the next 12 months. Note: This is an average value and should not be understood as a forecast. 

The SAFE White Paper N0. 109 covers more details about the methodology in the “Information & Downloads” section.



What sets the index apart:

  • The index is based on scientific research: The research results of the reference paper (Jiang et al. 2019) have shown for the US market that the sentiment conveyed in the analyzed reports correlates positively with the company's short-term investment-spending, but negatively with future share performance and profits in the following year. Managers therefore appear to be overoptimistic and tend to expand too much. ­The overinvestment leads to lower corporate profits in the future, which is ultimately reflected in lower stock returns. The evaluation of the German data for the period from 2003 to 2024 shows the same qualitative result as the reference paper for the US and thus supports the economic correlation found.
     
  • A stable data foundation: The SAFE Index is based on financial reports and transcripts from analyst conferences of companies from the DAX indices (DAX, MDAX, SDAX, TecDAX) since 2003. The sample of companies thus remains constant and therefore comparable. Even companies that were not successful and no longer exist or are no longer listed in one of the indices are included until they leave the stock exchange.
     
  • Direct statements from top managers. Other indices are based on surveys that are most likely not answered personally by CEOs. In addition, they usually only show sentiment, not the causes. The texts used for the SAFE Index, on the other hand, show what managers are concerned about and what they go into detail on in their own words.

How the index is created:

A text analysis tool examines transcripts of earnings conference calls as well as annual and quarterly reports of German listed companies from the DAX, MDAX, SDAX and TecDAX in the period from 2003 to the present for words from renowned lists of positive and negative words (for English documents: Loughran and McDonald (2011), for German documents: Bannier et al. (2019)). 

The difference between positive and negative words in relation to the total number of words is determined for each text document. In the next step, the average “sentiment” value is determined separately for all reports and transcripts. Then the average over the last 3 months is calculated and finally the mean value of the report sentiment and the transcript sentiment is calculated. 

All details of the index construction and the equations can be found in the SAFE White Paper in the “Information & Downloads” section.