The State Street Investor Confidence Index rose by 3.1 points to 106.3 in May from the revised April reading of 103.2. Confidence was up strongly in North America, where the benchmark rose 9.6 points from 95.3 to 104.9. Confidence also rose robustly among European investors, climbing 7.5 points from 76.8 to 84.3. However, risk appetite diminished somewhat in Asia, falling 4.9 points from 98.0 to 93.1.

The survey is released monthly by State Street Global Markets, the investment research and trading arm of State Street Corporation.

Developed through a research partnership with State Street Associates, and compiled by Ken Froot and Paul O'Connell, the confidence index measures investor confidence on a quantitative basis by analysing the actual buying and selling patterns of institutional investors. The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

Froot says the index was revised this month to provide a better guide on the level of risk tolerance. Specifically, he and survey co-developer Paul O-Connell have rebased the index so that a level of 100 is neutral.

"Readings above that level tell us that institutional investors are increasing their allocations to risky assets, while readings below 100 indicate that institutional investors are reducing such allocations," Froot says.

This month's increase of the global investor confidence to 106.3 affirms the return of institutional investors to risk-taking behaviour that occurred last month, after a seven-month hiatus, Froot says.