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Rating CFA Analysts' Forecast Performance

Recently published research says analysts holding the Chartered Financial Analyst (CFA) designation outperform those without the charter on measures such as timeliness and market influence.

As Globe and Mail columnist Andrew Willis points out, that's an uplifting message for some 15,000 Candians who sat for the exam last weekend.

The study, published in the American Accounting Association's journal, The Accounting Review, compared the performance of sell-side equity analysts with and without a CFA designation.

University of Toronto Rotman School of Management Professor Gus De Franco and Professor Yibin Zhou of the University of Texas Dallas found CFA-issued forecasts are timelier than those issued by non-charterholders, but the results for accuracy were mixed.

Performance Measures and Caveats

"There is some evidence that charterholders act more boldly and less optimistically" - positive characteristics for an analyst's forecast - the study authors say. But their results also suggest that by forecasting company earnings earlier than non-charterholders, the CFA designees pay a price in terms of accuracy. (For forecasts that were issued on the same day, CFA holders' estimates were significantly more accurate than non-holders.)

The authors also caution that the differences in performance, while statistically significant, might be too small to have much practical consequence.

As Willis puts it: "What candidates don't want to hear is that the two professors concluded that 'while [CFA] charterholders perform at statistically significant higher levels than non-charterholders in some tests, the economic significance of these differences is questionable.'"

A further caveat is that unobserved characteristics of the analysts, such as age or education, could have contributed to all the performance differences they noted.

When the authors examined a subsample of analysts both before and after obtaining a CFA, they found CFA holders improved their productivity during the program. And they found that the market's reaction to smaller firms is stronger for CFA holders after controlling for timeliness, boldness, accuracy and optimism.

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AUTHORDona DeZube Insider Comment
  • Ni
    Nikhileh Modh
    8 July 2009

    Now our responsibility as CFA candidate or prospective charter holder increases.Employers and investors as a whole will expect that we must perform.We can't blame market conditions,president Bush or Iraq war for our dismal performance.Diamon never tells it own value,it is known only at an auction bid.

  • Mi
    Mike
    8 July 2009

    As a CFA candidate yourself, I think the fact that you even have to ask that question reflects negatively on the CFA program - especially given the fact that statistics is heavily covered in level 1.

  • Jo
    Jon Jacobs
    16 June 2009

    An excellent point, Jack.

    If I may speculate a bit, I doubt the CFA Institute will reverse (or even modify) their current stance that bans members from implying they can deliver superior investment results because they attained a CFA charter.

    For one thing, the study's conclusions themselves aren't worded that strongly. Rather, the CFA holders' advantages described in the study are limited and tentative - especially in the crucial area of accuracy of forecasts.

    Still, if a CFA Institute member does end up citing the study in their marketing materials, and someone else complains they're violating the Standards of Professional Conduct by doing so, the CFAI disciplinary panel could face quite a dilemma.

    -Jon Jacobs, eFinancialCareers News staff

  • ja
    jackohayon1
    16 June 2009

    a very interesting article indeed.
    as a cfa candidate (taken june), it is a violation to imply that a person holding the charter is a superior analyst.
    i wonder if the cfa institute will reverse their stance when presented with the article, provided they agree with the methodology used is accurate.

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