The Harvard MBA Indicator is a contrarian stock market indicator based on the career choices of Harvard Business School MBA graduates. It assesses the percentage of graduates who accept “market-sensitive” jobs in specific financial sectors. The indicator is used to generate signals for potential shifts in the stock market.

Here’s how the Harvard MBA Indicator works:

1. **Market-Sensitive Jobs:**
– The indicator focuses on jobs in fields that are considered “market-sensitive.” These fields include investment banking, securities sales and trading, private equity, venture capital, and leveraged buyouts. Graduates entering these sectors are seen as having a direct impact on financial markets.

2. **Sell Signal:**
– If more than 30% of a year’s Harvard MBA graduates take jobs in the market-sensitive areas, it is considered a sell signal for stocks. The rationale behind this is that an unusually high percentage of graduates entering these fields may indicate excessive enthusiasm and a potential overheating of the financial markets.

3. **Buy Signal:**
– Conversely, if less than 10% of graduates take jobs in the market-sensitive sectors, it generates a long-term buy signal for stocks. A low percentage entering these fields might be interpreted as a lack of enthusiasm or excessive pessimism, potentially signaling undervaluation in the stock market.

4. **Neutral Zone:**
– If the percentage falls between 10% and 30%, it can be considered a “neutral” zone. This suggests a balanced representation of graduates in market-sensitive jobs, indicating neither excessive optimism nor pessimism.

5. **Contrarian Approach:**
– The Harvard MBA Indicator operates on a contrarian principle, assuming that extremes in sentiment can be indicative of turning points in the market. Sell signals occur when optimism is high, and buy signals occur when pessimism is high.

6. **Historical Performance:**
– Advocates of the indicator argue that it has shown some success in predicting market trends historically. However, like any market indicator, its reliability is subject to debate, and its effectiveness may vary over time.

It’s important to note that the Harvard MBA Indicator is just one of many indicators used by investors and analysts to assess market sentiment. Market conditions and investor behavior are complex, and relying solely on one indicator may not provide a comprehensive view of the market. Investors should consider various factors and use multiple indicators for a more holistic approach to decision-making.