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.