2024 CFA Program Curriculum Level II Box Set E-Book
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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Discover the official resource for success on the 2024 CFA Level II exam. Get your copy of the CFA¯® Program Curriculum now. The 2024 CFA Program Curriculum Level II Box Set contains the content you need to perform well on the Level II CFA exam in 2024. Designed for candidates to use for exam preparation and professional reference purposes, this set includes the full official curriculum for Level II and is part of the larger CFA Candidate Body of Knowledge (CBOK). Organized to get you accustomed to the Level II exam's heavy reliance on vignettes, the Level II curriculum will help you master mini case studies and accompanying analyses. The 2024 CFA Program Curriculum Level II Box Set allows you to: * Develop critical knowledge and skills essential in the industry. * Learn from financial thought leaders. * Access market-relevant instruction. The set also offers practice questions to assist with your mastery of key terms, concepts, and formulas. The volumes in Level II's box set are: * Volume 1: Quantitative Methods and Economics * Volume 2: Financial Statement Analysis * Volume 3: Corporate Issuers and Equity Valuation * Volume 4: Equity Valuation and Fixed Income * Volume 5: Derivatives, Alternative Investments, and Portfolio Management * Volume 6: Portfolio Management and Ethical and Professional Standards Indispensable for anyone preparing for the 2024 Level II CFA exam, the 2024 CFA Program Curriculum Level II Box Set is a must-have resource for those seeking the intermediate skills required to become a Chartered Financial Analyst¯®.
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ISBN 978-1-953337-68-9 (paper)
ISBN 978-1-394220-84-7 (ebook)
May 2023
Please visit our website atwww.WileyGlobalFinance.com.
Table of Contents
Cover
Copyright Page
Table of Contents
2024 CFA Program Curriculum Level 2 Volume 1: Quantitative Methods, Economics
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Errata
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prerequisite Knowledge
Feedback
Quantitative Methods
Basics of Multiple Regression and Underlying Assumptions
Learning Outcomes
1. Introduction
1.1. Summary
2. Uses of Multiple Linear Regression
3. The Basics of Multiple Regression
4. Assumptions Underlying Multiple Linear Regression
Practice Problems
Solutions
Evaluating Regression Model Fit and Interpreting Model Results
Learning Outcomes
1. Summary
2. Goodness of Fit
3. Testing Joint Hypotheses for Coefficients
4. Forecasting Using Multiple Regression
Practice Problems
Solutions
Model Misspecification
Learning Outcomes
1. Summary
2. Model Specification Errors
3. Misspecified Functional Form
3.1. Omitted Variables
3.2. Inappropriate Form of Variables
3.3. Inappropriate Scaling of Variables
3.4. Inappropriate Pooling of Data
4. Violations of Regression Assumptions: Heteroskedasticity
4.1. The Consequences of Heteroskedasticity
4.2. Testing for Conditional Heteroskedasticity
4.3. Correcting for Heteroskedasticity
5. Violations of Regression Assumptions: Serial Correlation
5.1. The Consequences of Serial Correlation
5.2. Testing for Serial Correlation
5.3. Correcting for Serial Correlation
6. Violations of Regression Assumptions: Multicollinearity
6.1. Consequences of Multicollinearity
6.2. Detecting Multicollinearity
6.3. Correcting for Multicollinearity
Practice Problems
Solutions
Extensions of Multiple Regression
Learning Outcomes
1. Learning Module Overview
2. Influence Analysis
2.1. Influential Data Points
2.2. Detecting Influential Points
3. Dummy Variables in a Multiple Linear Regression
3.1. Defining a Dummy Variable
3.2. Visualizing and Interpreting Dummy Variables
3.3. Testing for Statistical Significance of Dummy Variables
4. Multiple Linear Regression with Qualitative Dependent Variables
Practice Problems
Solutions
Time-Series Analysis
Learning Outcomes
1. Introduction
1.1. Challenges of Working with Time Series
2. Linear Trend Models
2.1. Linear Trend Models
3. Log-Linear Trend Models
4. Trend Models and Testing for Correlated Errors
5. AR Time-Series Models and Covariance-Stationary Series
5.1. Covariance-Stationary Series
6. Detecting Serially Correlated Errors in an AR Model
7. Mean Reversion and Multiperiod Forecasts
7.1. Multiperiod Forecasts and the Chain Rule of Forecasting
8. Comparing Forecast Model Performance
9. Instability of Regression Coefficients
10. Random Walks
10.1. Random Walks
11. The Unit Root Test of Nonstationarity
12. Moving-Average Time-Series Models
12.1. Smoothing Past Values with an n-Period Moving Average
12.2. Moving-Average Time-Series Models for Forecasting
13. Seasonality in Time-Series Models
14. AR Moving-Average Models and ARCH Models
14.1. Autoregressive Conditional Heteroskedasticity Models
15. Regressions with More Than One Time Series
16. Other Issues in Time Series
16.1. Suggested Steps in Time-Series Forecasting
17. Summary
References
Practice Problems
Solutions
Machine Learning
Learning Outcomes
1. Introduction
1.1. Machine Learning and Investment Management
2. What Is Machine Learning
2.1. Defining Machine Learning
2.2. Supervised Learning
2.3. Unsupervised Learning
2.4. Deep Learning and Reinforcement Learning
2.5. Summary of ML Algorithms and How to Choose among Them
3. Evaluating ML Algorithm Performance
3.1. Generalization and Overfitting
3.2. Errors and Overfitting
3.3. Preventing Overfitting in Supervised Machine Learning
4. Supervised ML Algorithms: Penalized Regression
4.1. Penalized Regression
5. Support Vector Machine
6. K-Nearest Neighbor
7. Classification and Regression Tree
8. Ensemble Learning and Random Forest
8.1. Voting Classifiers
8.2. Bootstrap Aggregating (Bagging)
8.3. Random Forest
9. Case Study: Classification of Winning and Losing Funds
9.1. Data Description
9.2. Methodology
9.3. Results
9.4. Conclusion
10. Unsupervised ML Algorithms and Principal Component Analysis
10.1. Principal Components Analysis
11. Clustering
12. K-Means Clustering
13. Hierarchical Clustering
13.1. Dendrograms
14. Case Study: Clustering Stocks Based on Co-Movement Similarity
15. Neural Networks, Deep Learning Nets, and Reinforcement Learning
15.1. Neural Networks
16. Deep Neural Networks
16.1. Reinforcement Learning
17. Case Study: Deep Neural Network–Based Equity Factor Model
17.1. Introduction
17.2. Data Description
17.3. Experimental Design
17.4. Results
18. Choosing an Appropriate ML Algorithm
19. Summary
References
Practice Problems
Solutions
Big Data Projects
Learning Outcomes
1. Introduction
1.1. Big Data in Investment Management
2. Executing a Data Analysis Project
3. Data Preparation and Wrangling
3.1. Structured Data
3.1.1. Data Preparation (Cleansing)
3.1.2. Data Wrangling (Preprocessing)
4. Unstructured (Text) Data
4.1. Text Preparation (Cleansing)
4.2. Text Wrangling (Preprocessing)
5. Data Exploration Objectives and Methods
5.1. Structured Data
5.1.1. Exploratory Data Analysis
5.1.2. Feature Selection
5.1.3. Feature Engineering
6. Unstructured Data: Text Exploration
6.1. Exploratory Data Analysis
6.2. Feature Selection
6.3. Feature Engineering
7. Model Training, Structured vs. Unstructured Data, and Method Selection
7.1. Structured and Unstructured Data
7.1.1. Method Selection
8. Performance Evaluation
9. Tuning
10. Financial Forecasting Project
10.1. Text Curation, Preparation, and Wrangling
10.1.1. Text Curation
10.1.2. Text Preparation (Cleansing)
10.1.3. Text Wrangling (Preprocessing)
11. Data Exploration
11.1. Exploratory Data Analysis
11.2. Feature Selection
11.3. Feature Engineering
12. Model Training
12.1. Method Selection
12.2. Performance Evaluation and Tuning
13. Results and Interpretation
14. Summary
Practice Problems
Solutions
Appendices A-E
1. Appendices A-E
Economics
Currency Exchange Rates: Understanding Equilibrium Value
Learning Outcomes
1. Introduction
2. Foreign Exchange Market Concepts
3. Arbitrage Constraints on Spot Exchange Rate Quotes
4. Forward Markets
5. The Mark-to-Market Value of a Forward Contract
6. International Parity Conditions
6.1. International Parity Conditions
7. Covered and Uncovered Interest Rate Parity and Forward Rate Parity
7.1. Uncovered Interest Rate Parity
7.2. Forward Rate Parity
8. Purchasing Power Parity
9. The Fisher Effect, Real Interest Rate Parity, and International Parity Conditions
9.1. International Parity Conditions: Tying All the Pieces Together
10. The Carry Trade
11. The Impact of Balance of Payments Flows
11.1. Current Account Imbalances and the Determination of Exchange Rates
11.1.1. The Flow Supply/Demand Channel
11.1.2. The Portfolio Balance Channel
11.1.3. The Debt Sustainability Channel
12. Capital Flows
12.1. Equity Market Trends and Exchange Rates
13. Monetary and Fiscal Policies
13.1. The Mundell–Fleming Model
13.2. Monetary Models of Exchange Rate Determination
13.3. The Portfolio Balance Approach
14. Exchange Rate Management: Intervention and Controls
15. Warning Signs of a Currency Crisis
16. Summary
17. Appendix
References
Practice Problems
Solutions
Economic Growth
Learning Outcomes
1. An Introduction to Growth in the Global Economy
1.1. Growth in the Global Economy: Developed vs. Developing Economies
2. Factors Favoring and Limiting Economic Growth
2.1. Financial Markets and Intermediaries
2.2. Political Stability, Rule of Law, and Property Rights
2.3. Education and Health Care Systems
2.4. Tax and Regulatory Systems
2.5. Free Trade and Unrestricted Capital Flows
2.6. Summary of Factors Limiting Growth in Developing Countries
3. Why Potential Growth Matters to Investors
4. Production Function and Growth Accounting
4.1. Production Function
4.2. Growth Accounting
4.3. Extending the Production Function
5. Capital Deepening vs. Technological Progress
6. Natural Resources
7. Labor Supply
7.1. Population Growth
7.2. Labor Force Participation
7.3. Net Migration
7.4. Average Hours Worked
7.5. Labor Quality: Human Capital
8. ICT, Non-ICT, and Technology and Public Infrastructure
8.1. Technology
8.2. Public Infrastructure
9. Summary of Economic Growth Determinants
10. Theories of Growth
10.1. Classical Model
10.2. Neoclassical Model
10.2.1. Balanced or Steady-State Rate of Growth
11. Implications of Neoclassical Model
12. Extension of Neoclassical Model
13. Endogenous Growth Model
14. Convergence Hypotheses
15. Growth in an Open Economy
16. Summary
References
Practice Problems
Solutions
Economics of Regulation
Learning Outcomes
1. Introduction
2. Economic Rationale for Regulation
2.1. Rationale for the Regulation of Financial Markets
3. Regulation of Commerce
4. Antitrust Regulation and Framework
5. Classification of Regulations and Regulators
5.1. Classification of Regulations and Regulators
6. Regulatory Interdependencies
7. Regulatory Tools
8. Cost–Benefit Analysis
8.1. Basic Concepts of Cost–Benefit Analysis
9. Analysis of Regulation
9.1. Assessment of the likelihood of regulatory change
9.2. Assessment of the impact of regulatory change on a sector
9.2.1. Impact on revenues
9.2.2. Cost impact
9.2.3. Business risk
10. Summary
References
Practice Problems
Solutions
Glossary
2024 CFA Program Curriculum Level 2 Volume 2: Financial Statement Analysis
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Errata
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prerequisite Knowledge
Feedback
Financial Statement Analysis
Intercorporate Investments
Learning Outcomes
1. Introduction
2. Basic Corporate Investment Categories
3. Investments In Financial Assets: IFRS 9
3.1. Classification and Measurement
3.2. Reclassification of Investments
4. Investments In Associates And Joint Ventures
4.1. Equity Method of Accounting: Basic Principles
5. Amortization of Excess Purchase Price, Fair Value Option, and Impairment
5.1. Amortization of Excess Purchase Price
5.2. Fair Value Option
5.3. Impairment
6. Transactions with Associates and Disclosure
6.1. Disclosure
6.2. Issues for Analysts
7. Acquisition Method
7.1. Acquisition Method
7.1.1. Recognition and Measurement of Identifiable Assets and Liabilities
7.1.2. Recognition and Measurement of Contingent Liabilities
7.1.3. Recognition and Measurement of Indemnification Assets
7.1.4. Recognition and Measurement of Financial Assets and Liabilities
7.1.5. Recognition and Measurement of Goodwill
7.1.6. Recognition and Measurement when Acquisition Price Is Less than Fair Value
7.2. Impact of the Acquisition Method on Financial Statements, Post-Acquisition
8. The Consolidation Process
8.1. Business Combination with Less than 100% Acquisition
8.2. Non-controlling (Minority) Interests: Balance Sheet
8.3. Non-controlling (Minority) Interests: Income Statement
8.4. Goodwill Impairment
9. Financial Statement Presentation
10. Variable Interest and Special Purpose Entities
10.1. Securitization of Assets
11. Additional Issues in Business Combinations That impair Comparability
11.1. Contingent Assets and Liabilities
11.2. Contingent Consideration
11.3. In-Process R&D
11.4. Restructuring Costs
12. Summary
Practice Problems
Solutions
Employee Compensation: Post-Employment and Share-Based
Learning Outcomes
1. Introduction
2. Types of Employee Compensation
2.1. Share-Based Compensation
3. Financial Reporting for Share-Based Compensation
3.1. Restricted stock
3.2. Stock options
4. Share-Based Compensation Tax and Share Count Effects, Note Disclosures
4.1. Share-Based Compensation and Shares Outstanding
4.2. Disclosures for Share-Based Compensation
5. Share-Based Compensation and Financial Statement Modeling
5.1. Forecasting Shares Outstanding with Share-Based Awards
5.1.1. Valuation Considerations with Share-Based Compensation
6. Financial Reporting for Post-Employment Benefits
6.1. Financial Reporting for DC Plans
6.2. Financial Reporting for DB Plans
6.3. US GAAP and IFRS Differences in DB Pension Accounting
6.4. Disclosures for Post-Employment Benefit Plans
7. Financial Modeling and Valuation Considerations for Post-Employment Benefits
7.1. Valuation Considerations for DB Plans
Practice Problems
Solutions
Multinational Operations
Learning Outcomes
1. Introduction
1.1. Foreign Currency Transactions
1.1.1. Foreign Currency Transaction Exposure to Foreign Exchange Risk
1.1.1.1. Accounting for Foreign Currency Transactions with Settlement before Balance Sheet Date
1.1.1.2. Accounting for Foreign Currency Transactions with Intervening Balance Sheet Dates
1.1.2. Analytical Issues
2. Disclosures Related to Foreign Currency Transaction Gains and Losses
3. Translation of Foreign Currency Financial Statements
3.1. Translation Conceptual Issues
3.1.1. All Assets and Liabilities Are Translated at the Current Exchange Rate
3.1.2. Only Monetary Assets and Monetary Liabilities Are Translated at the Current Exchange Rate
3.1.3. Balance Sheet Exposure
4. Translation Methods
4.1. Foreign Currency Is the Functional Currency
4.2. Parent’s Presentation Currency Is the Functional Currency
4.3. Translation of Retained Earnings
4.4. Highly Inflationary Economies
5. Illustration of Translation Methods
6. Translation Analytical Issues
7. Translation in an Hyperinflationary Economy
8. Using Both Translation Methods
8.1. Disclosures Related to Translation Methods
9. Multinational Operations and a Company's Effective Tax Rate
10. Additional Disclosures on the Effects of Foreign Currency
10.1. Disclosures Related to Sales Growth
10.2. Disclosures Related to Major Sources of Foreign Exchange Risk
11. Summary
Practice Problems
Solutions
Analysis of Financial Institutions
Learning Outcomes
1. Introduction
1.1. What Makes Financial Institutions Different?
1.2. Global Organizations
1.3. Individual Jurisdictions’ Regulatory Authorities
2. Analyzing a Bank: the CAMELS Approach
2.1. The CAMELS Approach
2.1.1. Capital Adequacy
2.1.2. Asset Quality
2.1.3. Management Capabilities
2.1.4. Earnings
2.1.5. Liquidity Position
2.1.6. Sensitivity to Market Risk
3. Analyzing a Bank: non-CAMELS Factors
3.1. Banking-Specific Analytical Considerations Not Addressed by CAMELS
3.2. Analytical Considerations Not Addressed by CAMELS That Are Also Relevant for Any Company
4. Analyzing a Bank: Example of CAMELS Approach
4.1. Capital Adequacy
4.2. Asset Quality
4.3. Management Capabilities
4.4. Earnings
4.5. Liquidity Position
4.6. Sensitivity to Market Risk
4.7. Overall CAMELS Assessment
5. Analyzing Property and Casualty Insurance Companies
5.1. Property and Casualty Insurance Companies
5.1.1. Operations: Products and Distribution
5.1.2. Earnings Characteristics
5.1.3. Investment Returns
5.1.4. Liquidity
5.1.5. Capitalization
6. Analyzing Life and Health Insurance Companies
6.1. Life and Health Insurance Companies
6.1.1. Operations: Products and Distribution
6.1.2. Earnings Characteristics
6.1.3. Investment Returns
6.1.4. Liquidity
6.1.5. Capitalization
7. Summary
Practice Problems
Solutions
Evaluating Quality of Financial Reports
Learning Outcomes
1. Introduction
2. Conceptual Framework
2.1. Conceptual Framework for Assessing the Quality of Financial Reports
3. Potential Problems
3.1. Reported Amounts and Timing of Recognition
4. Classification
5. M&A Issues and Divergence from Economic Reality
5.1. Financial Reporting that Diverges from Economic Reality Despite Compliance with Accounting Rules
6. General Steps of Evaluation
6.1. General Steps to Evaluate the Quality of Financial Reports
7. Quantitative Tools to Assess the Likelihood of Misreporting
7.1. Beneish Model
7.2. Other Quantitative Models
7.3. Limitations of Quantitative Models
8. Earnings Quality Indicators
8.1. Indicators of Earnings Quality
8.1.1. Recurring Earnings
9. Earnings Persistence and Related Measures of Accruals
10. Mean Reversion in Earnings
10.1. Beating Benchmarks
10.2. External Indicators of Poor-Quality Earnings
11. Revenue Recognition Case: Sunbeam Corporation
11.1. Revenue Recognition Case: Sunbeam Corporation
11.1.1. Premature/Fraudulent Revenue Recognition
12. Revenue Recognition Case: MicroStrategy, Inc.
12.1. Multiple-Element Contracts
13. Cost Capitalization Case: WorldCom Corp.
13.1. Property/Capital Expenditures Analysis
14. Bankruptcy Prediction Models
14.1. Altman Model
14.2. Developments in Bankruptcy Prediction Models
15. Cash Flow Quality
15.1. Indicators of Cash Flow Quality
15.2. Evaluating Cash Flow Quality
16. Balance Sheet Quality
17. Sources of Information about Risk
17.1. Limited Usefulness of Auditor’s Opinion as a Source of Information about Risk
18. Risk-Related Disclosures in the Notes
19. Management Commentary, Other Required Disclosures, and the Financial Press
19.1. Other Required Disclosures
19.2. Financial Press as a Source of Information about Risk
20. Summary
References
Practice Problems
Solutions
Integration of Financial Statement Analysis Techniques
Learning Outcomes
1. Introduction
2. Case Study 1
2.1. Phase 1: Define a Purpose for the Analysis
2.2. Phase 2: Collect Input Data
3. Phases 3 and 4: DuPont Analysis
3.1. Phase 3: Process Data and Phase 4: Analyze/Interpret the Processed Data
3.1.1. DuPont Analysis
4. Phases 3 and 4: DuPont Decomposition
5. Phases 3 and 4: Adjusting for Unusual Charges
6. Phases 3 and 4: Asset Base Composition
6.1. Asset Base Composition
7. Phases 3 and 4: Capital Structure Analysis
7.1. Capital Structure Analysis
8. Phases 3 and 4: Earnings and Capital
8.1. Segment Analysis and Capital Allocation
9. Phases 3 and 4: Cash Flow and Capital
10. Phases 3 & 4: Segment Analysis by Product Group
11. Phases 3 & 4: Accruals and Earnings Quality
12. Phases 3 & 4: Cash Flow Relationships
13. Phases 3 & 4: Decomposition and Analysis of the Company's Valuation
14. Phases 5 and 6: Conclusions and Follow-up
14.1. Phase 5: Develop and Communicate Conclusions and Recommendations (e.g., with an Analysis Report)
14.1.1. Support for an Investment in Nestlé Shares
14.1.2. Causes for Concern
14.2. Phase 6: Follow-up
15. Summary
Practice Problems
Solutions
Financial Statement Modeling
Learning Outcomes
1. Introduction
1.1. Financial Statement Modeling: An Overview
1.1.1. Income Statement Modeling: Revenue
1.1.1.1. Top-Down Approaches to Modeling Revenue
1.1.1.2. Bottom-Up Approaches to Modeling Revenue
1.1.1.3. Hybrid Approaches to Modeling Revenue
2. Income Statement Modeling: Operating Costs
3. Modeling Operating Costs: Cost of Goods Sold and SG&A
3.1. SG&A Expenses
4. Modeling Non-operating Costs and Other Items
4.1. Financing Expenses
4.2. Corporate Income Tax
4.3. Income Statement Modeling: Other Items
5. Balance Sheet and Cash Flow Statement Modeling
6. Building a Financial Statement Model
6.1. Company Overview
6.2. Revenue Forecast
6.3. COGS
6.4. SG&A Expenses and Other Operating Expense
6.5. Operating Profit by Segment
6.6. Non-Operating Items
6.7. Corporate Income Tax Forecast
6.8. Shares Outstanding
6.9. Pro Forma Income Statement
6.10. Pro Forma Statement of Cash Flows
6.11. Capital Investments and Depreciation Forecasts
6.12. Working Capital Forecasts
6.13. Forecasted Cash Flow Statement
6.14. Forecasted Balance Sheet
6.15. Valuation Model Inputs
7. Behavioral Finance and Analyst Forecasts
7.1. Overconfidence in Forecasting
7.2. Illusion of Control
7.3. Conservatism Bias
7.4. Representativeness Bias
7.5. Confirmation Bias
8. The Impact of Competitive Factors in Prices and Costs
8.1. Cognac Industry Overview
9. Inflation and Deflation
9.1. Sales Projections with Inflation and Deflation
9.1.1. Industry Sales and Inflation or Deflation
9.1.2. Company Sales and Inflation or Deflation
9.2. Cost Projections with Inflation and Deflation
9.2.1. Industry Costs and Inflation or Deflation
9.2.2. Company Costs and Inflation or Deflation
10. Technological Developments
11. Long-Term Forecasting
11.1. Case Study: Estimating Normalized Revenue
12. Conclusions and Summary
Practice Problems
Solutions
Glossary
2024 CFA Program Curriculum Level 2 Volume 3: Corporate Issuers, Equity Valuation
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Errata
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prerequisite Knowledge
Feedback
Corporate Issuers
Analysis of Dividends and Share Repurchases
Learning Outcomes
1. Dividends: Forms and Effects on Shareholder Wealth and Financial Ratios
1.1. Dividends: Forms and Effects on Shareholder Wealth and Issuing Company’s Financial Ratios
1.1.1. Regular Cash Dividends
1.1.2. Extra or Special (Irregular) Dividends
1.1.3. Liquidating Dividends
1.1.4. Stock Dividends
1.1.5. Stock Splits
2. Dividend Policy and Company Value: Theories
2.1. Dividend Policy Does Not Matter
2.2. Dividend Policy Matters: The Bird in the Hand Argument
2.3. Dividend Policy Matters: The Tax Argument
3. Other Theoretical Issues: Signaling
3.1. The Information Content of Dividend Actions: Signaling
3.2. Agency Costs and Dividends as a Mechanism to Control Them
4. Other Theoretical Issues: Summary
5. Factors Affecting Dividend Policy in Practice
5.1. Investment Opportunities
5.2. The Expected Volatility of Future Earnings
5.3. Financial Flexibility
5.4. Tax Considerations
5.4.1. Taxation Methods
5.4.2. Shareholder Preference for Current Income versus Capital Gains
5.5. Flotation Costs
5.6. Contractual and Legal Restrictions
5.7. Factors Affecting Dividend Policy: Summary
6. Payout Policies
6.1. Stable Dividend Policy
6.2. Constant Dividend Payout Ratio Policy
6.3. Global Trends in Payout Policy
7. Share Repurchases
7.1. Share Repurchase Methods
7.2. Financial Statement Effects of Repurchases
7.2.1. Changes in Earnings per Share
7.2.2. Changes in Book Value per Share
8. Valuation Equivalence of Cash Dividends and Share Repurchase
9. The Dividend versus Share Repurchase Decision
10. Analysis of Dividend Safety
11. Summary
References
Practice Problems
Solutions
Environmental, Social, and Governance (ESG) Considerations in Investment Analysis
Learning Outcomes
1. Introduction
2. Ownership Structures and Their Effects on Corporate Governance
2.1. Dispersed vs. Concentrated Ownership
2.2. Conflicts within Different Ownership Structures
2.3. Types of Influential Shareholders
2.3.1. Banks
2.3.2. Families
2.3.3. State-Owned Enterprises
2.3.4. Institutional Investors
2.3.5. Group Companies
2.3.6. Private Equity Firms
2.3.7. Foreign Investors
2.3.8. Managers and Board Directors
2.4. Effects of Ownership Structure on Corporate Governance
2.4.1. Director Independence
2.4.2. Board Structures
2.4.3. Special Voting Arrangements
2.4.4. Corporate Governance Codes, Laws, and Listing Requirements
2.4.5. Stewardship Codes
3. Evaluating Corporate Governance Policies and Procedures
3.1. Board Policies and Practices
3.1.1. Board of Directors Structure
3.1.2. Board Independence
3.1.3. Board Committees
3.1.4. Board Skills and Experience
3.1.5. Board Composition
3.1.6. Other Considerations in Board Evaluation
3.2. Executive Remuneration
3.3. Shareholder Voting Rights
4. Identifying ESG-Related Risks and Opportunities
4.1. Materiality and Investment Horizon
4.2. Relevant ESG-Related Factors
5. Evaluating ESG-Related Risks and Opportunities
5.1. ESG Integration
5.2. Examples of ESG Integration
6. Summary
Practice Problems
Solutions
Cost of Capital: Advanced Topics
Learning Outcomes
1. Introduction
2. Cost of Capital Factors
2.1. Top-Down External Factors
2.1.1. Capital Availability
2.1.2. Market Conditions
2.1.3. Legal and Regulatory Considerations, Country Risk
2.1.4. Tax Jurisdiction
2.2. Bottom-Up Company Specific Factors
2.2.1. Revenue, Earnings and Cash Flow Volatility
2.2.2. Asset Nature and Liquidity
2.2.3. Financial Strength, Profitability, and Financial Leverage
2.2.4. Security Features
2.3. Cost of Capital Factors Summary
3. Estimating the Cost of Debt
3.1. Traded Debt
3.2. Non-Traded Debt
3.3. Bank Debt
3.4. Leases
3.5. International Considerations
4. The ERP
4.1. Historical Approach
4.1.1. Equity Index Selection
4.1.2. Time Period
4.1.3. Selection of the Mean Type
4.1.4. Selection of the Risk-Free Rate Proxy
4.1.5. Limitations of the Historical Approach
4.2. Forward-Looking Approach
4.2.1. Survey-Based Estimates
4.2.2. Dividend Discount Model Estimates
4.2.3. Macroeconomic Modeling
4.2.4. Limitations of the Forward-Looking Approach
5. The Cost of Equity (Required Return on Equity)
5.1. DDM
5.2. Bond Yield Plus Risk Premium Approach
5.3. Risk-Based Models
5.3.1. CAPM
5.3.2. Fama–French Models
5.4. Estimating the Cost of Equity for Private Companies
5.4.1. Expanded CAPM
5.4.2. Build-Up Approach
5.5. International Considerations
5.5.1. Country Spread and Country Risk Rating Models
5.5.2. Extended CAPM
5.5.3. Comparison of International Adjustment Methods
5.6. Required Return on Equity Summary
6. Mini-Case 1
6.1. Gretna Engines
7. Mini-Case 2
7.1. Precision Irrigation
Practice Problems
Solutions
Corporate Restructuring
Learning Outcomes
1. Introduction
2. Corporate Evolution, Actions, and Motivations
2.1. Corporate Life Cycle and Actions
2.2. Motivations for Corporate Structural Change
2.3. Types of Corporate Restructurings
2.3.1. Investment Actions: Equity Investments, Joint Ventures, and Acquisitions
2.3.2. Divestment Actions: Sales and Spin Offs
2.3.3. Restructuring Actions: Cost and Balance Sheet Restructuring and Reorganization
2.3.4. Leveraged Buyouts
3. Evaluating Corporate Restructurings
3.1. Initial Evaluation
3.2. Preliminary Valuation
3.2.1. Comparable Company Analysis
3.2.2. Comparable Transaction Analysis
3.2.3. Premium Paid Analysis
4. Modeling and Valuation
4.1. Pro Forma Weighted Average Cost of Capital
5. Evaluating Investment Actions
5.1. Equity Investment
5.2. Joint Venture
5.3. Acquisition
6. Evaluating Divestment Actions
7. Evaluating Restructuring Actions
8. Summary
References
Practice Problems
Solutions
Equity Valuation
Equity Valuation: Applications and Processes
Learning Outcomes
1. Introduction
1.1. Value Definitions and Valuation Applications
1.1.1. What Is Value?
1.1.1.1. Intrinsic Value
1.1.1.2. Going-Concern Value and Liquidation Value
1.1.1.3. Fair Market Value and Investment Value
1.1.1.4. Definitions of Value: Summary
2. Applications of Equity Valuation
3. Understanding the Business
3.1. Understanding the Business
3.1.1. Industry and Competitive Analysis
4. Analysis of Financial Reports and Sources of Information
4.1. Sources of Information
5. Considerations in Using Accounting Information
6. Selecting the Appropriate Valuation Method
6.1. Selecting the Appropriate Valuation Model
6.1.1. Absolute Valuation Models
6.1.2. Relative Valuation Models
7. Issues in Model Selection and Interpretation
7.1. Issues in Model Selection and Interpretation
8. The Analyst's Role and Responsibilities
8.1. Applying the Valuation Conclusion: The Analyst’s Role and Responsibilities
9. Communicating Valuation Results
9.1. Contents of a Research Report
9.2. Format of a Research Report
9.3. Research Reporting Responsibilities
10. Summary
References
Practice Problems
Solutions
Discounted Dividend Valuation
Learning Outcomes
1. Introduction
1.1. Present Value Models
1.1.1. Valuation Based on the Present Value of Future Cash Flows
1.1.2. Streams of Expected Cash Flows
2. The Dividend Discount Model
2.1. The Expression for a Single Holding Period
2.2. The Expression for Multiple Holding Periods
3. The Gordon Growth Model
3.1. The Gordon Growth Model Equation
3.2. The Links among Dividend Growth, Earnings Growth, and Value Appreciation in the Gordon Growth Model
4. Share Repurchases and The Implied Dividend Growth Rate
4.1. The Implied Dividend Growth Rate
5. The Gordon Growth Model: Other Issues
5.1. Gordon Growth Model and the Price-to-Earnings Ratio
5.2. Estimating a Required Return Using the Gordon Growth Model
5.3. The Gordon Growth Model: Concluding Remarks
6. Multistage Dividend Discount Models
6.1. Two-Stage Dividend Discount Model
6.2. Valuing a Non-Dividend-Paying Company
7. The H-Model and Three-Stage Dividend Discount Models
7.1. Three-Stage Dividend Discount Models
8. General Modeling and Estimating a Required Return Using Any DDM
8.1. Estimating a Required Return Using Any DDM
8.2. Multistage DDM: Concluding Remarks
9. The Financial Determinants of Growth Rates
9.1. Sustainable Growth Rate
9.2. Dividend Growth Rate, Retention Rate, and ROE Analysis
10. Financial Models and Dividends
11. Summary
References
Practice Problems
Solutions
Glossary
2024 CFA Program Curriculum Level 2 Volume 4: Equity Valuation, Fixed Income
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Errata
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prerequisite Knowledge
Feedback
Equity Valuation
Free Cash Flow Valuation
Learning Outcomes
1. Introduction
1.1. FCFF and FCFE Valuation Approaches
1.1.1. Defining Free Cash Flow
1.1.2. Present Value of Free Cash Flow
1.1.2.1. Present Value of FCFF
1.1.2.2. Present Value of FCFE
1.1.3. Single-Stage (Constant-Growth) FCFF and FCFE Models
1.1.3.1. Constant-Growth FCFF Valuation Model
1.1.3.2. Constant-Growth FCFE Valuation Model
2. Forecasting Free Cash Flow and Computing FCFF from Net Income
2.1. Computing FCFF from Net Income
3. Computing FCFF from the Cash Flow Statement
4. Additional Considerations in Computing FCFF
4.1. Classification of Certain Items on the Statement of Cash Flow
4.2. Adjustments to Derive Operating Cash Flow from Net Income
4.3. Adjustments to Derive Operating Cash Flow from Net Income That May Merit Additional Attention from an Analyst
5. Computing FCFE from FCFF
6. Finding FCFF and FCFE from EBITA or EBITDA
7. FCFF and FCFE on a Uses-of-Free-Cash-Flow Basis
8. Forecasting FCFF and FCFE
9. Other Issues in Free Cash Flow Analysis
9.1. Analyst Adjustments to CFO
9.2. Free Cash Flow versus Dividends and Other Earnings Components
9.3. Free Cash Flow and Complicated Capital Structures
10. Free Cash Flow Model Variations
10.1. An International Application of the Single-Stage Model
10.2. Sensitivity Analysis of FCFF and FCFE Valuations
11. Two-Stage Free Cash Flow Models
11.1. Fixed Growth Rates in Stage 1 and Stage 2
11.2. Declining Growth Rate in Stage 1 and Constant Growth in Stage 2
12. Three-Stage Free Cash Flow Models
13. Integrating ESG in Free Cash Flow Models
14. Non-operating Assets and Firm Value
15. Summary
References
Practice Problems
Solutions
Market-Based Valuation: Price and Enterprise Value Multiples
Learning Outcomes
1. Introduction
1.1. Price and Enterprise Value Multiples in Valuation
1.1.1. The Method of Comparables
1.1.2. The Method Based on Forecasted Fundamentals
2. Price/Earnings: the Basics
2.1. Price/Earnings
2.1.1. Alternative Definitions of P/E
2.1.2. Calculating the Trailing P/E
2.1.2.1. Analyst Adjustments for Nonrecurring Items
2.1.2.2. Analyst Adjustments for Business-Cycle Influences
2.1.2.3. Analyst Adjustments for Comparability with Other Companies
2.1.2.4. Dealing with Extremely Low, Zero, or Negative Earnings
2.1.3. Forward P/E
3. Price/Earnings: Valuation based on Forecasted Fundamentals
3.1. Justified P/E
3.2. Predicted P/E Based on Cross-Sectional Regression
4. Price/Earnings: Using the P/E in Valuation
4.1. Peer-Company Multiples
4.2. Industry and Sector Multiples
4.3. Overall Market Multiple
4.4. Own Historical P/E
4.5. P/Es in Cross-Country Comparisons
4.6. Using P/Es to Obtain Terminal Value in Multistage Dividend Discount Models
5. Price/Book Value
5.1. Determining Book Value
5.2. Valuation Based on Forecasted Fundamentals
5.3. Valuation Based on Comparables
6. Price/Sales
6.1. Determining Sales
6.2. Valuation Based on Forecasted Fundamentals
6.3. Valuation Based on Forecasted Fundamentals
6.4. Valuation Based on Comparables
7. Price/Cash Flow
7.1. Determining Cash Flow
7.2. Valuation Based on Forecasted Fundamentals
7.3. Valuation Based on Comparables
8. Price/Dividends and Dividend Yield
8.1. Calculation of Dividend Yield
8.2. Valuation Based on Forecasted Fundamentals
8.3. Valuation Based on Comparables
9. Enterprise Value/EBITDA
9.1. Enterprise Value/EBITDA
9.1.1. Determining Enterprise Value
9.1.2. Valuation Based on Forecasted Fundamentals
9.1.3. Valuation Based on Comparables
10. Other Enterprise Value Multiples
10.1. Enterprise Value to Sales
10.2. Price and Enterprise Value Multiples in a Comparable Analysis: Some Illustrative Data
11. International Considerations when Using Multiples
12. Momentum Valuation Indicators
13. Valuation Indicators: Issues in Practice
13.1. Averaging Multiples: The Harmonic Mean
13.2. Using Multiple Valuation Indicators
14. Summary
References
Practice Problems
Solutions
Residual Income Valuation
Learning Outcomes
1. Introduction
1.1. Residual Income
1.1.1. The Use of Residual Income in Equity Valuation
1.1.2. Commercial Implementations
2. The Residual Income Model
2.1. The General Residual Income Model
2.2. Fundamental Determinants of Residual Income
3. Single-Stage and Multistage Residual Income Valuation
3.1. Multistage Residual Income Valuation
4. Relationship to Other Approaches
4.1. Strengths and Weaknesses of the Residual Income Model
4.2. Broad Guidelines for Using a Residual Income Model
5. Accounting and International Considerations
5.1. Violations of the Clean Surplus Relationship
6. Accounting Considerations: Other
6.1. Intangible Assets
6.2. Non-recurring Items
6.3. Other Aggressive Accounting Practices
6.4. International Considerations
7. Summary
References
Practice Problems
Solutions
Private Company Valuation
Learning Outcomes
1. Introduction
2. Public vs. Private Company Valuation
3. Private Company Valuation Uses and Areas of Focus
3.1. Uses of Private Company Valuation
3.2. Private Company Valuation Areas of Focus
4. Earnings Normalization and Cash Flow Estimation
4.1. Earnings Normalization Issues for Private Companies
4.2. Cash Flow Estimation Issues for Private Companies
5. Private Company Discount Rates and Required Rates of Return
5.1. Factors Affecting Private Company Discount Rates
5.2. Required Rate of Return Models
6. Valuation Discounts and Premiums
6.1. Lack of Control Discounts
6.2. Lack of Marketability Discounts
7. Private Company Valuation Approaches
7.1. Income-Based Approaches
7.1.1. Free Cash Flow Valuation Approach
7.1.2. Capitalized Cash Flow Method
7.2. Excess Earnings Method
7.3. Market-Based Approaches
7.4. GPCM
7.4.1. Guideline Transactions and Prior Transaction Methods
8. Private Company Valuation: Income-Based Approach
9. Private Company Valuation: Market-Based Approach
Practice Problems
Solutions
Fixed Income
The Term Structure and Interest Rate Dynamics
Learning Outcomes
1. Spot Rates, Forward Rates, and the Forward Rate Model
1.1. Spot Rates and Forward Rates
1.1.1. The Forward Rate Model
2. YTM in Relation to Spot and Forward Rates
2.1. Yield Curve Movement and the Forward Curve
3. Active Bond Portfolio Management
4. The Swap Rate Curve
4.1. Swap Rate Curve
4.2. Why Do Market Participants Use Swap Rates When Valuing Bonds?
4.3. How Do Market Participants Use the Swap Curve in Valuation?
5. The Swap Spread and Spreads as a Price Quotation Convention
5.1. Spreads as a Price Quotation Convention
6. Traditional Theories of the Term Structure of Interest Rates
6.1. Expectations Theory
6.2. Liquidity Preference Theory
6.3. Segmented Markets Theory
6.4. Preferred Habitat Theory
7. Yield Curve Factor Models
7.1. A Bond’s Exposure to Yield Curve Movement
7.2. Factors Affecting the Shape of the Yield Curve
8. The Maturity Structure of Yield Curve Volatilities
8.1. Yield Volatility
8.2. Managing Yield Curve Risks Using Key Rate Duration
9. Developing Interest Rate Views Using Macroeconomic Variables
10. Summary
References
Practice Problems
Solutions
The Arbitrage-Free Valuation Framework
Learning Outcomes
1. Introduction
1.1. The Meaning of Arbitrage-Free Valuation
1.2. The Law of One Price
1.3. Arbitrage Opportunity
1.4. Implications of Arbitrage-Free Valuation for Fixed-Income Securities
2. Arbitrage-Free Valuation for an Option-Free Bond
2.1. The Binomial Interest Rate Tree
3. Creating a Binomial Interest Rate Tree
3.1. Determining the Value of a Bond at a Node
4. Calibrating the Binomial Interest Rate Tree to the Term Structure
5. Valuing an Option-Free Bond with a Binomial Tree
6. Valuing an Option-Free Bond with Pathwise Valuation
7. The Monte Carlo Method
8. Term Structure Models
8.1. Model Choice
8.1.1. Interest rate factors
8.1.2. Interest rate process
8.1.3. Class of model
8.2. Equilibrium Models
8.2.1. The Cox–Ingersoll–Ross model
8.2.2. The Vasicek model
8.3. Arbitrage-Free Models
8.3.1. The Ho–Lee model
8.3.2. The Kalotay–Williams–Fabozzi model
8.4. Modern Models
9. Summary
Practice Problems
Solutions
Valuation and Analysis of Bonds with Embedded Options
Learning Outcomes
1. Introduction
1.1. Overview of Embedded Options
1.1.1. Simple Embedded Options
1.1.1.1. Call Options
1.1.1.2. Put Options and Extension Options
1.1.2. Complex Embedded Options
2. Callable and Putable Bonds
2.1. Relationships between the Values of a Callable or Putable Bond, Straight Bond, and Embedded Option
2.2. Valuation of Default-Free and Option-Free Bonds: A Refresher
2.3. Valuation of Default-Free Callable and Putable Bonds in the Absence of Interest Rate Volatility
2.3.1. Valuation of a Callable Bond at Zero Volatility
2.3.2. Valuation of a Putable Bond at Zero Volatility
3. Effect of Interest Rate Volatility
3.1. Interest Rate Volatility
3.2. Level and Shape of the Yield Curve
3.2.1. Effect on the Value of a Callable Bond
3.2.2. Effect on the Value of a Putable Bond
4. Valuation of Default-Free Callable and Putable Bonds with Interest Rate Volatility
4.1. Valuation of a Callable Bond with Interest Rate Volatility
4.2. Valuation of a Putable Bond with Interest Rate Volatility
5. Valuation of Risky Callable and Putable Bonds
5.1. Option-Adjusted Spread
5.2. Effect of Interest Rate Volatility on Option-Adjusted Spread
6. Bonds with Embedded Options: Effective Duration
6.1. Duration
6.1.1. Effective Duration
7. One-Sided and Key Rate Duration
7.1. Key Rate Durations
8. Effective Convexity
9. Capped and Floored Floating-Rate Bonds
9.1. Valuation of a Capped Floater
9.2. Valuation of a Floored Floater
10. Convertible Bonds
10.1. Defining Features of a Convertible Bond
10.2. Analysis of a Convertible Bond
10.2.1. Conversion Value
10.2.2. Minimum Value of a Convertible Bond
10.2.3. Market Conversion Price, Market Conversion Premium per Share, and Market Conversion Premium Ratio
10.2.4. Downside Risk with a Convertible Bond
10.2.5. Upside Potential of a Convertible Bond
11. Comparison of Risk–Return Characteristics
11.1. Comparison of the Risk–Return Characteristics of a Convertible Bond, the Straight Bond, and the Underlying Common Stock
12. Summary
Practice Problems
Solutions
Credit Analysis Models
Learning Outcomes
1. Introduction
2. Modeling Credit Risk and the Credit Valuation Adjustment
3. Credit Scores and Credit Ratings
4. Structural and Reduced-Form Credit Models
5. Valuing Risky Bonds in an Arbitrage-Free Framework
6. Interpreting Changes in Credit Spreads
7. The Term Structure of Credit Spreads
8. Credit Analysis for Securitized Debt
9. Summary
References
Practice Problems
Solutions
Credit Default Swaps
Learning Outcomes
1. Introduction
2. Basic Definitions and Concepts
2.1. Types of CDS
3. Important Features of CDS Markets
3.1. Credit and Succession Events
3.2. Settlement Protocols
3.3. CDS Index Products
3.4. Market Characteristics
4. Basics of Valuation and Pricing
4.1. Basic Pricing Concepts
4.2. The Credit Curve and CDS Pricing Conventions
4.3. CDS Pricing Conventions
4.4. Valuation Changes in CDS during Their Lives
4.5. Monetizing Gains and Losses
5. Applications of CDS
5.1. Managing Credit Exposures
6. Valuation Differences and Basis Trading
7. Summary
Practice Problems
Solutions
Glossary
2024 CFA Program Curriculum Level 2 Volume 5: Derivatives, Alternative Investments, Portfolio Management
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Errata
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prerequisite Knowledge
Feedback
Derivatives
Pricing and Valuation of Forward Commitments
Learning Outcomes
1. Introduction
1.1. Principles of Arbitrage-Free Pricing and Valuation of Forward Commitments
1.2. Pricing and Valuing Generic Forward and Futures Contracts
1.2.1. Forwards and Futures
2. Carry Arbitrage
2.1. Carry Arbitrage Model When There Are No Underlying Cash Flows
2.2. Carry Arbitrage Model When Underlying Has Cash Flows
3. Pricing Equity Forwards and Futures
3.1. Equity Forward and Futures Contracts
3.2. Interest Rate Forward and Futures Contracts
4. Pricing Fixed-Income Forward and Futures Contracts
4.1. Comparing Forward and Futures Contracts
5. Pricing and Valuing Swap Contracts
5.1. Interest Rate Swap Contracts
6. Pricing and Valuing Currency Swap Contracts
7. Pricing and Valuing Equity Swap Contracts
8. Summary
Practice Problems
Solutions
Valuation of Contingent Claims
Learning Outcomes
1. Introduction
1.1. Principles of a No-Arbitrage Approach to Valuation
2. Binomial Option Valuation Model
3. One-Period Binomial Model
4. Two-Period Binomial Model: Call Options
5. Two-Period Binomial Model: Put Options
6. Two-Period Binomial Model: Role of Dividends
7. Interest Rate Options and Multiperiod Model
7.1. Multiperiod Model
8. Black-Scholes-Merton (BSM) Option Valuation Model
8.1. Introductory Material
8.2. Assumptions of the BSM Model
9. BSM Model: Components
10. BSM Model: Carry Benefits and Applications
11. Black Option Valuation Model and European Options on Futures
11.1. European Options on Futures
12. Interest Rate Options
13. Swaptions
14. Option Greeks and Implied Volatility: Delta
14.1. Delta
15. Gamma
16. Theta
17. Vega
18. Rho
19. Implied Volatility
20. Summary
Practice Problems
Solutions
Alternative Investments
Introduction to Commodities and Commodity Derivatives
Learning Outcomes
1. Introduction
2. Commodity Sectors
2.1. Commodity Sectors
3. Life Cycle of Commodities
3.1. Energy
3.2. Industrial/Precious Metals
3.3. Livestock
3.4. Grains
3.5. Softs
4. Valuation of Commodities
5. Commodities Futures Markets: Participants
5.1. Futures Market Participants
5.1.1. Commodity Hedgers
5.1.2. Commodity Traders and Investors
5.1.3. Commodity Exchanges
5.1.4. Commodity Market Analysts
5.1.5. Commodity Regulators
6. Commodity Spot and Futures Pricing
7. Theories of Futures Returns
7.1. Theories of Futures Returns
7.1.1. Insurance Theory
7.1.2. Hedging Pressure Hypothesis
7.1.3. Theory of Storage
8. Components of Futures Returns
9. Contango, Backwardation, and the Roll Return
10. Commodity Swaps
10.1. Total Return Swap
10.2. Basis Swap
10.3. Variance Swaps and Volatility Swaps
11. Commodity Indexes
11.1. S&P GSCI
11.2. Bloomberg Commodity Index
11.3. Deutsche Bank Liquid Commodity Index
11.4. Thomson Reuters/CoreCommodity CRB Index
11.5. Rogers International Commodity Index
11.6. Rebalancing Frequency
11.7. Commodity Index Summary
12. Summary
Practice Problems
Solutions
Overview of Types of Real Estate Investment
Learning Outcomes
1. Introduction
2. Basic Forms of Real Estate Investment
2.1. Real Estate Investment: Basic Forms
2.1.1. Property Type
2.1.2. Capital Position
2.1.3. Investment Vehicles
2.1.3.1. Private vs. Public
2.1.3.2. Equity vs. Debt
2.1.3.3. Categorization
2.2. Characteristics
2.3. Risk Factors
2.3.1. Property Demand and Supply
2.3.2. Valuation
2.3.3. Property Operations
3. Economic Value Drivers, Role in Portfolio, and Risk/Return of Real Estate Investments Relative to Stocks and Bonds
3.1. Economic Drivers
3.1.1. Macro Factors
3.1.2. Individual (Consumer) Factors
3.1.3. Industrial Factors
3.1.4. Real Estate Cycles
3.2. Role of Real Estate in an Investment Portfolio
3.3. Real Estate Risk and Return Relative to Stocks and Bonds
3.4. Classifications
3.5. Investment Characteristics by Property Type
3.5.1. Common Types of Leases
3.5.2. Office
3.5.3. Industrial and Warehouse
3.5.4. Retail
3.5.5. Multi-Family
4. Considerations in Analysis and Due Diligence
5. Indexes
5.1. Appraisal-Based Indexes
5.2. Transaction-Based Indexes
5.3. Advantages and Disadvantages of Appraisal-Based and Transaction-Based Indexes
5.3.1. Appraisal Lags in Rising and Falling Markets
5.3.2. Infrequent Appraisals
5.3.3. Impact on Performance Measurement and Asset Allocation
5.3.4. Adjustment for Appraisal Lag
5.4. Real Estate Security Indexes
Practice Problems
Solutions
Investments in Real Estate through Publicly Traded Securities
Learning Outcomes
1. Introduction
2. Types of Publicly Traded Real Estate Securities
2.1. REIT Structures
2.2. Market Size
2.3. Advantages and Disadvantages of Investing in REITs
3. Valuation: Net Asset Value Approach
3.1. Introduction
3.2. Accounting for Investment Properties
3.3. Net Asset Value per Share: Calculation
3.4. Net Asset Value per Share: Application
3.4.1. Important Considerations in an NAV-Based Approach to Valuing REITs
3.4.2. Premium or Discount to NAV
3.4.3. Further Observations on NAV
4. Valuation: Relative Value (Price Multiple) Approach
4.1. Relative Value Approach to Valuing REIT Stocks
4.2. Funds from Operations and Adjusted Funds from Operations
4.3. P/FFO and P/AFFO Multiples: Advantages and Disadvantages
5. REIT Mini Case Study: Example of Disclosures and Valuation Analysis
5.1. Selection of Valuation Methods
6. Private vs. Public: A Comparison
Practice Problems
Solutions
Hedge Fund Strategies
Learning Outcomes
1. Introduction and Classification of Hedge Fund Strategies
1.1. Classification of Hedge Funds and Strategies
2. Equity Strategies: Long/Short Equity
2.1. Long/Short Equity
2.1.1. Investment Characteristics
2.1.2. Strategy Implementation
3. Equity Strategies: Dedicated Short Selling and Short-Biased
3.1. Investment Characteristics
3.2. Strategy Implementation
4. Equity Strategies: Equity Market Neutral
4.1. Investment Characteristics
4.2. Strategy Implementation
5. Event-Driven Strategies: Merger Arbitrage
5.1. Merger Arbitrage
5.1.1. Investment Characteristics
5.1.2. Strategy Implementation
6. Event-Driven Strategies: Distressed Securities
6.1. Investment Characteristics
6.2. Strategy Implementation
7. Relative Value Strategies: Fixed-Income Arbitrage
7.1. Fixed-Income Arbitrage
7.1.1. Investment Characteristics
7.1.2. Strategy Implementation
8. Relative Value Strategies: Convertible Bond Arbitrage
8.1. Investment Characteristics
8.2. Strategy Implementation
9. Opportunistic Strategies: Global Macro Strategies
9.1. Global Macro Strategies
9.1.1. Investment Characteristics
9.1.2. Strategy Implementation
10. Opportunistic Strategies: Managed Futures
10.1. Investment Characteristics
10.2. Strategy Implementation
11. Specialist Strategies
11.1. Volatility Trading
11.1.1. Investment Characteristics and Strategy Implementation
11.2. Reinsurance/Life Settlements
11.2.1. Investment Characteristics and Strategy Implementation
12. Multi-Manager Strategies
12.1. Fund-of-Funds
12.1.1. Investment Characteristics
12.1.2. Strategy Implementation
12.2. Multi-Strategy Hedge Funds
12.2.1. Investment Characteristics
12.2.2. Strategy Implementation
13. Analysis of Hedge Fund Strategies Using a Conditional Factor Risk Model
13.1. Conditional Factor Risk Model
14. Evaluating Equity Hedge Fund Strategies: Application
15. Evaluating Multi-Manager Hedge Fund Strategies: Application
16. Portfolio Contribution of Hedge Fund Strategies
16.1. Performance Contribution to a 60/40 Portfolio
16.2. Risk Metrics
17. Summary
References
Practice Problems
Solutions
Portfolio Management
Exchange-Traded Funds: Mechanics and Applications
Learning Outcomes
1. Introduction
2. ETF Mechanics
2.1. The Creation/Redemption Process
2.1.1. ETF share creation.
2.1.2. ETF share redemption
2.2. Trading and Settlement
2.2.1. US settlement: National Security Clearing Corporation and Depository Trust Company.
2.2.2. European trading and settlement.
3. Understanding ETFs
3.1. Expense Ratios
3.2. Index Tracking/Tracking Error
3.2.1. Daily differences.
3.2.1.1. Periodic tracking.
3.2.1.2. Sources of tracking error.
3.2.1.3. Fees and expenses.
3.2.1.4. Representative sampling/optimization.
3.2.1.5. Depositary receipts and ETFs.
3.2.1.6. Index changes.
3.2.1.7. Fund accounting practices.
3.2.1.8. Regulatory and tax requirements.
3.2.1.9. Asset manager operations.
3.3. Tax Issues
3.3.1. Capital Gains Distributions
3.3.1.1. Tax fairness.
3.3.1.2. Tax efficiency.
3.3.2. Other Distributions
3.3.3. Taxes on Sale
3.4. ETF Trading Costs
3.4.1. ETF Bid–Ask Spreads
3.4.2. Premiums and Discounts
3.4.2.1. Timing differences.
3.4.2.2. Stale pricing.
3.5. Total Costs of ETF Ownership
3.5.1. Trading costs vs. management fees.
4. ETF Risks
4.1. Counterparty Risk
4.1.1. Settlement risk.
4.1.2. Security lending.
4.2. Fund Closures
4.2.1. Regulations.
4.2.2. Competition.
4.2.3. Corporate actions.
4.2.4. Creation and redemption halts.
4.2.5. Change in investment strategy.
4.3. Investor-Related Risk
5. ETFs in Portfolio Management
5.1. ETF Strategies
5.2. Efficient Portfolio Management
5.2.1. Portfolio liquidity management.
5.2.2. Portfolio rebalancing.
5.2.3. Portfolio completion strategies.
5.2.4. Transition management.
5.3. Asset Class Exposure Management
5.3.1. Core exposure to an asset class or sub-asset class.
5.3.2. Tactical strategies.
5.4. Active and Factor Investing
5.4.1. Factor (smart beta) ETFs.
5.4.2. Risk management.
5.4.3. Alternatively weighted ETFs.
5.4.4. Discretionary active ETFs.
5.4.5. Dynamic asset allocation and multi-asset strategies.
6. Summary
Practice Problems
Solutions
Using Multifactor Models
Learning Outcomes
1. Background and Uses
1.1. Multifactor Models and Modern Portfolio Theory
2. Arbitrage Pricing Theory and Multifactor Models
3. Types of Multifactor Models
3.1. Factors and Types of Multifactor Models
3.2. The Structure of Fundamental Factor Models
3.3. Fixed-Income Multifactor Models
3.3.1. Macroeconomic Multifactor Models
3.3.2. Fundamental Multifactor Models
3.3.3. Risk and Style Multifactor Models
4. Macroeconomic Factor Models
5. Fundamental Factor Models
6. Factor Models in Return Attribution
6.1. Factor Models in Return Attribution
7. Factor Models in Risk Attribution
8. Factor Models in Portfolio Construction
9. Factor Models in Strategic Portfolio Decisions
10. Summary
References
Practice Problems
Solutions
Measuring and Managing Market Risk
Learning Outcomes
1. Introduction
1.1. Understanding Value at Risk
1.1.1. Value at Risk: Formal Definition
2. Estimating VaR
3. The Parametric Method of VaR Estimation
4. The Historical Simulation Method of VaR Estimation
5. The Monte Carlo Simulation Method of VaR Estimation
6. Advantages, Limitations, and Extensions of VaR
6.1. Advantages of VaR
6.2. Limitations of VaR
6.3. Extensions of VaR
7. Other Key Risk Measures
7.1. Sensitivity Risk Measures
7.1.1. Equity Exposure Measures
7.1.2. Fixed-Income Exposure Measures
7.1.3. Options Risk Measures
8. Scenario Risk Measures
8.1. Historical Scenarios
8.2. Hypothetical Scenarios
9. Sensitivity and Scenario Risk Measures and VaR
9.1. Advantages and Limitations of Sensitivity Risk Measures and Scenario Risk Measures
10. Using Constraints in Market Risk Management
10.1. Risk Budgeting
10.2. Position Limits
10.3. Scenario Limits
10.4. Stop-Loss Limits
10.5. Risk Measures and Capital Allocation
11. Market Participants and the Risk Measures They Use
11.1. Market Participants and the Different Risk Measures They Use
11.1.1. Banks
11.1.2. Asset Managers
11.1.2.1. Traditional Asset Managers
11.1.2.2. Hedge Funds
12. Pension Funds and Insurers
12.1. Insurers
13. Summary
References
Practice Problems
Solutions
Backtesting and Simulation
Learning Outcomes
1. Introduction
2. The Objectives of Backtesting
3. The Backtesting Process
3.1. Step 1: Strategy Design
3.1.1. Investment Universe
3.1.2. Return Definition
3.1.3. Rebalancing Frequency and Transaction Cost
3.1.4. Start and End Date
3.2. Step 2: Historical Investment Simulation
3.3. Step 3: Analysis of Backtesting Output
4. Backtesting Multifactor Models
4.1. Step 1: Strategy Design
4.2. Step 2: Historical Investment Simulation
4.3. Step 3: Output Analysis
5. Common Problems in Backtesting
5.1. Survivorship Bias
5.2. Look-Ahead Bias
5.3. Data Snooping
6. Historical Scenario Analysis
7. Simulation Analysis
7.1. Historical Simulation
7.2. Monte Carlo Simulation
8. Sensitivity Analysis
9. Summary
Practice Problems
Solutions
Glossary
2024 CFA Program Curriculum Level 2 Volume 6: Portfolio Management, Ethical and Professional Standards
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Errata
Designing Your Personal Study Program
CFA Institute Learning Ecosystem (LES)
Prerequisite Knowledge
Feedback
Portfolio Management
Economics and Investment Markets
Learning Outcomes
1. Introduction
2. The Present Value Model
2.1. The Present Value Model
3. Expectations and Asset Values
4. The Discount Rate on Real Default-Free Bonds: Interest Rates
4.1. Real Default-Free Interest Rates
5. The Discount Rate on Real Default-Free Bonds: Uncertainty and Risk Premiums
6. The Discount Rate on Real Default-Free Bonds: Risk Premiums on Risky Assets
7. Default-Free Interest Rates and Economic Growth
8. Real Default-Free Interest Rates and the Business Cycle
8.1. Economic Growth and Real Yields
8.2. Real Default-Free Interest Rate Summary
9. The Yield Curve and the Business Cycle
9.1. Short-Term Nominal Interest Rates and the Business Cycle
10. Treasury Bills and the Business Cycle
10.1. Short-Term Interest Rate Summary
11. Conventional Government Bonds and Break-even Inflation Rates
11.1. Break-Even Inflation Rates
12. The Default-Free Yield Curve and the Business Cycle
13. The Slope of the Yield Curve and the Term Spread
13.1. The Term Spread and the Business Cycle
14. Evidence on Risk Premiums for Default-Free Bonds
15. Other Factors
16. Credit Premiums and the Business Cycle
16.1. Credit Spreads and the Credit Risk Premium
17. Industry- and Company-Specific Credit Quality
17.1. Company-Specific Factors
18. Sovereign Credit Risk
18.1. Credit Premium Summary
19. Equities and the Equity Risk Premium
19.1. Equities and Bad Consumption Outcomes
20. Earnings Growth and the Economic Cycle
21. How Big is the Equity Risk Premium?
22. Valuation Multiples
23. Commercial Real Estate
23.1. Regular Cash Flow from Commercial Real Estate Investments
23.1.1. The Equity Component of an Investment in Commercial Real Estate
23.1.2. Illiquidity and Investment in Commercial Real Estate
23.2. The Pricing Formula for Commercial Real Estate
24. Commercial Real Estate and the Business Cycle
25. Summary
References
Practice Problems
Solutions
Analysis of Active Portfolio Management
Learning Outcomes
1. Introduction
2. Active Management and Value Added
2.1. Choice of Benchmark
2.2. Measuring Value Added
2.3. Decomposition of Value Added
3. The Sharpe Ratio and The Information Ratio
3.1. The Sharpe Ratio
3.2. The Information Ratio
4. Constructing Optimal Portfolios
5. Active Security Returns and The Fundamental Law of Active Management
5.1. Active Security Returns
5.2. The Basic Fundamental Law
6. The Full Fundamental Law
6.1. Ex Post Performance Measurement
7. Applications of the Fundamental Law and Global Equity Strategy
7.1. Global Equity Strategy
8. Fixed-Income Strategies
9. Practical Limitations
9.1. Ex Ante Measurement of Skill
9.2. Independence of Investment Decisions
10. Summary
References
Practice Problems
Solutions
Ethical and Professional Standards
Code of Ethics and Standards of Professional Conduct
Learning Outcomes
1. Preface
1.1. Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct
1.2. Standards of Practice Handbook
1.3. Summary of Changes in the Eleventh Edition
1.3.1. Inclusion of Updated CFA Institute Mission
1.3.2. Updated Code of Ethics Principle
1.3.3. New Standard Regarding Responsibilities of Supervisors [IV(C)]
1.3.4. Additional Requirement under the Standard for Communication with Clients and Prospective Clients [V(B)]
1.3.5. Modification to Standard VII(A)
1.3.6. General Guidance and Example Revision
1.4. CFA Institute Professional Conduct Program
1.5. Adoption of the Code and Standards
1.6. Acknowledgments
2. Ethics and the Investment Industry
2.1. Why Ethics Matters
2.1.1. Ethics, Society, and the Capital Markets
2.1.2. Capital Market Sustainability and the Actions of One
2.1.3. The Relationship between Ethics and Regulations
2.1.4. Applying an Ethical Framework
2.1.5. Commitment to Ethics by Firms
2.1.6. Ethical Commitment of CFA Institute
3. CFA Institute Code of Ethics and Standards of Professional Conduct
3.1. Preamble
3.2. The Code of Ethics
3.3. Standards of Professional Conduct
Guidance for Standards I–VII
Learning Outcomes
1. Standard I(A): Professionalism - Knowledge of the Law
1.1. Standard I(A) Knowledge of the Law
1.2. Guidance
1.2.1. Relationship between the Code and Standards and Applicable Law
1.2.2. Participation in or Association with Violations by Others
1.2.3. Investment Products and Applicable Laws
2. Standard I(A): Recommended Procedures
2.1. Members and Candidates
2.2. Distribution Area Laws
2.3. Legal Counsel
2.4. Dissociation
2.5. Firms
3. Standard I(A): Application of the Standard
3.1. Example 1 (Notification of Known Violations):
3.2. Example 2 (Dissociating from a Violation):
3.3. Example 3 (Dissociating from a Violation):
3.4. Example 4 (Following the Highest Requirements):
3.5. Example 5 (Following the Highest Requirements):
3.6. Example 6 (Laws and Regulations Based on Religious Tenets):
3.7. Example 7 (Reporting Potential Unethical Actions):
3.8. Example 8 (Failure to Maintain Knowledge of the Law):
4. Standard I(B): Professionalism - Independence and Objectivity
4.1. Guidance
4.1.1. Buy-Side Clients
4.1.2. Fund Manager and Custodial Relationships
4.1.3. Investment Banking Relationships
4.1.4. Performance Measurement and Attribution
4.1.5. Public Companies
4.1.6. Credit Rating Agency Opinions
4.1.7. Influence during the Manager Selection/Procurement Process
4.1.8. Issuer-Paid Research
4.1.9. Travel Funding
5. Standard I(B): Recommended Procedures
6. Standard I(B): Application of the Standard
6.1. Example 1 (Travel Expenses):
6.2. Example 2 (Research Independence):
6.3. Example 3 (Research Independence and Intrafirm Pressure):
6.4. Example 4 (Research Independence and Issuer Relationship Pressure):
6.5. Example 5 (Research Independence and Sales Pressure):
6.6. Example 6 (Research Independence and Prior Coverage):
6.7. Example 7 (Gifts and Entertainment from Related Party):
6.8. Example 8 (Gifts and Entertainment from Client):
6.9. Example 9 (Travel Expenses from External Manager):
6.10. Example 10 (Research Independence and Compensation Arrangements):
6.11. Example 11 (Recommendation Objectivity and Service Fees):
6.12. Example 12 (Recommendation Objectivity):
6.13. Example 13 (Influencing Manager Selection Decisions):
6.14. Example 14 (Influencing Manager Selection Decisions):
6.15. Example 15 (Fund Manager Relationships):
6.16. Example 16 (Intrafirm Pressure):
7. Standard I(C): Professionalism – Misrepresentation
7.1. Guidance
7.1.1. Impact on Investment Practice
7.1.2. Performance Reporting
7.1.3. Social Media
7.1.4. Omissions
7.1.5. Plagiarism
7.1.6. Work Completed for Employer
8. Standard I(C): Recommended Procedures
8.1. Factual Presentations
8.2. Qualification Summary
8.3. Verify Outside Information
8.4. Maintain Webpages
8.5. Plagiarism Policy
9. Standard I(C): Application of the Standard
9.1. Example 1 (Disclosure of Issuer-Paid Research):
9.2. Example 2 (Correction of Unintentional Errors):
9.3. Example 3 (Noncorrection of Known Errors):
9.4. Example 4 (Plagiarism):
9.5. Example 5 (Misrepresentation of Information):
9.6. Example 6 (Potential Information Misrepresentation):
9.7. Example 7 (Plagiarism):
9.8. Example 8 (Plagiarism):
9.9. Example 9 (Plagiarism):
9.10. Example 10 (Plagiarism):
9.11. Example 11 (Misrepresentation of Information):
9.12. Example 12 (Misrepresentation of Information):
9.13. Example 13 (Avoiding a Misrepresentation):
9.14. Example 14 (Misrepresenting Composite Construction):
9.15. Example 15 (Presenting Out-of-Date Information):
9.16. Example 16 (Overemphasis of Firm Results):
10. Standard I(D): Professionalism – Misconduct
10.1. Guidance
11. Standard I(D): Recommended Procedures
12. Standard I(D): Application of the Standard
12.1. Example 1 (Professionalism and Competence):
12.2. Example 2 (Fraud and Deceit):
12.3. Example 3 (Fraud and Deceit):
12.4. Example 4 (Personal Actions and Integrity):
12.5. Example 5 (Professional Misconduct):
13. Standard II(A): Integrity of Capital Markets - Material Nonpublic Information
13.1. Standard II(A) Material Nonpublic Information
13.2. Guidance
13.2.1. What Is “Material” Information?
13.2.2. What Constitutes “Nonpublic” Information?
13.2.3. Mosaic Theory
13.2.4. Social Media
13.2.5. Using Industry Experts
13.2.6. Investment Research Reports
14. Standard II(A): Recommended Procedures
14.1. Achieve Public Dissemination
14.2. Adopt Compliance Procedures
14.3. Adopt Disclosure Procedures
14.4. Issue Press Releases
14.5. Firewall Elements
14.6. Appropriate Interdepartmental Communications
14.7. Physical Separation of Departments
14.8. Prevention of Personnel Overlap
14.9. A Reporting System
14.10. Personal Trading Limitations
14.11. Record Maintenance
14.12. Proprietary Trading Procedures
14.13. Communication to All Employees
15. Standard II(A): Application of the Standard
15.1. Example 1 (Acting on Nonpublic Information):
15.2. Example 2 (Controlling Nonpublic Information):
15.3. Example 3 (Selective Disclosure of Material Information):
15.4. Example 4 (Determining Materiality):
15.5. Example 5 (Applying the Mosaic Theory):
15.6. Example 6 (Applying the Mosaic Theory):
15.7. Example 7 (Analyst Recommendations as Material Nonpublic Information):
15.8. Example 8 (Acting on Nonpublic Information):
15.9. Example 9 (Mosaic Theory):
15.10. Example 10 (Materiality Determination):
15.11. Example 11 (Using an Expert Network):
15.12. Example 12 (Using an Expert Network):
16. Standard II(B): Integrity of Capital Markets - Market Manipulation
16.1. Guidance
16.1.1. Information-Based Manipulation
16.1.2. Transaction-Based Manipulation
17. Standard II(B): Application of the Standard
17.1. Example 1 (Independent Analysis and Company Promotion):
17.2. Example 2 (Personal Trading Practices and Price):
17.3. Example 3 (Creating Artificial Price Volatility):
17.4. Example 4 (Personal Trading and Volume):
17.5. Example 5 (“Pump-Priming” Strategy):
17.6. Example 6 (Creating Artificial Price Volatility):
17.7. Example 7 (Pump and Dump Strategy):
17.8. Example 8 (Manipulating Model Inputs):
17.9. Example 9 (Information Manipulation):
18. Standard III(A): Duties to Clients - Loyalty, Prudence, and Care
18.1. Standard III(A) Loyalty, Prudence, and Care
18.2. Guidance
18.2.1. Understanding the Application of Loyalty, Prudence, and Care
18.2.2. Identifying the Actual Investment Client
18.2.3. Developing the Client’s Portfolio
18.2.4. Soft Commission Policies
18.2.5. Proxy Voting Policies
19. Standard III(A): Recommended Procedures
19.1. Regular Account Information
19.2. Client Approval
19.3. Firm Policies
20. Standard III(A): Application of the Standard
20.1. Example 1 (Identifying the Client—Plan Participants):
20.2. Example 2 (Client Commission Practices):
20.3. Example 3 (Brokerage Arrangements):
20.4. Example 4 (Brokerage Arrangements):
20.5. Example 5 (Client Commission Practices):
20.6. Example 6 (Excessive Trading):
20.7. Example 7 (Managing Family Accounts):
20.8. Example 8 (Identifying the Client):
20.9. Example 9 (Identifying the Client):
20.10. Example 10 (Client Loyalty):
20.11. Example 11 (Execution-Only Responsibilities):
21. Standard III(B): Duties to Clients - Fair Dealing
21.1. Guidance
21.1.1. Investment Recommendations
21.1.2. Investment Action
22. Standard III(B): Recommended Procedures
22.1. Develop Firm Policies
22.2. Disclose Trade Allocation Procedures
22.3. Establish Systematic Account Review
22.4. Disclose Levels of Service
23. Standard III(B): Application of the Standard
23.1. Example 1 (Selective Disclosure):
23.2. Example 2 (Fair Dealing between Funds):
23.3. Example 3 (Fair Dealing and IPO Distribution):
23.4. Example 4 (Fair Dealing and Transaction Allocation):
23.5. Example 5 (Selective Disclosure):
23.6. Example 6 (Additional Services for Select Clients):
23.7. Example 7 (Minimum Lot Allocations):
23.8. Example 8 (Excessive Trading):
23.9. Example 9 (Limited Social Media Disclosures):
23.10. Example 10 (Fair Dealing between Clients):
24. Standard III(C): Duties to Clients – Suitability
24.1. Guidance
24.1.1. Developing an Investment Policy
24.1.2. Understanding the Client’s Risk Profile
24.1.3. Updating an Investment Policy
24.1.4. The Need for Diversification
24.1.5. Addressing Unsolicited Trading Requests
24.1.6. Managing to an Index or Mandate
25. Standard III(C): Recommended Procedures
25.1. Investment Policy Statement
25.2. Regular Updates
25.3. Suitability Test Policies
26. Standard III(C): Application of the Standard
26.1. Example 1 (Investment Suitability—Risk Profile):
26.2. Example 2 (Investment Suitability—Entire Portfolio):
26.3. Example 3 (IPS Updating):
26.4. Example 4 (Following an Investment Mandate):
26.5. Example 5 (IPS Requirements and Limitations):
26.6. Example 6 (Submanager and IPS Reviews):
26.7. Example 7 (Investment Suitability—Risk Profile):
26.8. Example 8 (Investment Suitability):
27. Standard III(D): Duties to Clients - Performance Presentation
27.1. Guidance
28. Standard III(D): Recommended Procedures
28.1. Apply the GIPS Standards
28.2. Compliance without Applying GIPS Standards
29. Standard III(D): Application of the Standard
29.1. Example 1 (Performance Calculation and Length of Time):
29.2. Example 2 (Performance Calculation and Asset Weighting):
29.3. Example 3 (Performance Presentation and Prior Fund/Employer):
29.4. Example 4 (Performance Presentation and Simulated Results):
29.5. Example 5 (Performance Calculation and Selected Accounts Only):
29.6. Example 6 (Performance Attribution Changes):
29.7. Example 7 (Performance Calculation Methodology Disclosure):
29.8. Example 8 (Performance Calculation Methodology Disclosure):
30. Standard III(E): Duties to Clients - Preservation of Confidentiality
30.1. Guidance
30.1.1. Status of Client
30.1.2. Compliance with Laws
30.1.3. Electronic Information and Security
30.1.4. Professional Conduct Investigations by CFA Institute
31. Standard III(E): Recommended Procedures
31.1. Communicating with Clients
32. Standard III(E): Application of the Standard
32.1. Example 1 (Possessing Confidential Information):
32.2. Example 2 (Disclosing Confidential Information):
32.3. Example 3 (Disclosing Possible Illegal Activity):
32.4. Example 4 (Disclosing Possible Illegal Activity):
32.5. Example 5 (Accidental Disclosure of Confidential Information):
33. Standard IV(A): Duties to Employers – Loyalty
33.1. Standard IV(A) Loyalty
33.2. Guidance
33.2.1. Employer Responsibilities
33.2.2. Independent Practice
33.2.3. Leaving an Employer
33.2.4. Use of Social Media
33.2.5. Whistleblowing
33.2.6. Nature of Employment
34. Standard IV(A): Recommended Procedures
34.1. Competition Policy
34.2. Termination Policy
34.3. Incident-Reporting Procedures
34.4. Employee Classification
35. Standard IV(A): Application of the Standard
35.1. Example 1 (Soliciting Former Clients):
35.2. Example 2 (Former Employer’s Documents and Files):
35.3. Example 3 (Addressing Rumors):
35.4. Example 4 (Ownership of Completed Prior Work):
35.5. Example 5 (Ownership of Completed Prior Work):
35.6. Example 6 (Soliciting Former Clients):
35.7. Example 7 (Starting a New Firm):
35.8. Example 8 (Competing with Current Employer):
35.9. Example 9 (Externally Compensated Assignments):
35.10. Example 10 (Soliciting Former Clients):
35.11. Example 11 (Whistleblowing Actions):
35.12. Example 12 (Soliciting Former Clients):
35.13. Example 13 (Notification of Code and Standards):
35.14. Example 14 (Leaving an Employer):
35.15. Example 15 (Confidential Firm Information):
36. Standard IV(B): Duties to Employers - Additional Compensation Arrangements
36.1. Guidance
37. Standard IV(B): Recommended Procedures
38. Standard IV(B): Application of the Standard
38.1. Example 1 (Notification of Client Bonus Compensation):
38.2. Example 2 (Notification of Outside Compensation):
38.3. Example 3 (Prior Approval for Outside Compensation):
39. Standard IV(C): Duties to Employers - Responsibilities of Supervisors
39.1. Guidance
39.1.1. System for Supervision
39.1.2. Supervision Includes Detection
40. Standard IV(C): Recommended Procedures
40.1. Codes of Ethics or Compliance Procedures
40.2. Adequate Compliance Procedures
40.3. Implementation of Compliance Education and Training
40.4. Establish an Appropriate Incentive Structure
41. Standard IV(C): Application of the Standard
41.1. Example 1 (Supervising Research Activities):
41.2. Example 2 (Supervising Research Activities):
41.3. Example 3 (Supervising Trading Activities):
41.4. Example 4 (Supervising Trading Activities and Record Keeping):
41.5. Example 5 (Accepting Responsibility):
41.6. Example 6 (Inadequate Procedures):
41.7. Example 7 (Inadequate Supervision):
41.8. Example 8 (Supervising Research Activities):
41.9. Example 9 (Supervising Research Activities):
42. Standard V(A): Investment Analysis, Recommendations, and Actions - Diligence and Reasonable Basis
42.1. Standard V(A) Diligence and Reasonable Basis
42.2. Guidance
42.2.1. Defining Diligence and Reasonable Basis
42.2.2. Using Secondary or Third-Party Research
42.2.3. Using Quantitatively Oriented Research
42.2.4. Developing Quantitatively Oriented Techniques
42.2.5. Selecting External Advisers and Subadvisers
42.2.6. Group Research and Decision Making
43. Standard V(A): Recommended Procedures
44. Standard V(A): Application of the Standard
44.1. Example 1 (Sufficient Due Diligence):
44.2. Example 2 (Sufficient Scenario Testing):
44.3. Example 3 (Developing a Reasonable Basis):
44.4. Example 4 (Timely Client Updates):
44.5. Example 5 (Group Research Opinions):
44.6. Example 6 (Reliance on Third-Party Research):
44.7. Example 7 (Due Diligence in Submanager Selection):
44.8. Example 8 (Sufficient Due Diligence):
44.9. Example 9 (Sufficient Due Diligence):
44.10. Example 10 (Sufficient Due Diligence):
44.11. Example 11 (Use of Quantitatively Oriented Models):
44.12. Example 12 (Successful Due Diligence/Failed Investment):
44.13. Example 13 (Quantitative Model Diligence):
44.14. Example 14 (Selecting a Service Provider):
44.15. Example 15 (Subadviser Selection):
44.16. Example 16 (Manager Selection):
44.17. Example 17 (Technical Model Requirements):
45. Standard V(B): Investment Analysis, Recommendations, and Actions - Communication with Clients and Prospective Clients
45.1. Guidance
45.1.1. Informing Clients of the Investment Process
45.1.2. Different Forms of Communication
45.1.3. Identifying Risks and Limitations
45.1.4. Report Presentation
45.1.5. Distinction between Facts and Opinions in Reports
46. Standard V(B): Recommended Procedures
47. Standard V(B): Application of the Standard
47.1. Example 1 (Sufficient Disclosure of Investment System):
47.2. Example 2 (Providing Opinions as Facts):
47.3. Example 3 (Proper Description of a Security):
47.4. Example 4 (Notification of Fund Mandate Change):
47.5. Example 5 (Notification of Fund Mandate Change):
47.6. Example 6 (Notification of Changes to the Investment Process):
47.7. Example 7 (Notification of Changes to the Investment Process):
47.8. Example 8 (Notification of Changes to the Investment Process):
47.9. Example 9 (Sufficient Disclosure of Investment System):
47.10. Example 10 (Notification of Changes to the Investment Process):
47.11. Example 11 (Notification of Errors):
47.12. Example 12 (Notification of Risks and Limitations):
47.13. Example 13 (Notification of Risks and Limitations):
47.14. Example 14 (Notification of Risks and Limitations):
48. Standard V(C): Investment Analysis, Recommendations, and Actions - Record Retention
48.1. Guidance
48.1.1. New Media Records
48.1.2. Records Are Property of the Firm
48.1.3. Local Requirements
49. Standard V(C): Recommended Procedures
50. Standard V(C): Application of the Standard
50.1. Example 1 (Record Retention and IPS Objectives and Recommendations):
50.2. Example 2 (Record Retention and Research Process):
50.3. Example 3 (Records as Firm, Not Employee, Property):
51. Standard VI(A): Conflicts of Interest - Disclosure of Conflicts
51.1. Standard VI(A) Disclosure of Conflicts
51.2. Guidance
51.2.1. Disclosure of Conflicts to Employers
51.2.2. Disclosure to Clients
51.2.3. Cross-Departmental Conflicts
51.2.4. Conflicts with Stock Ownership
51.2.5. Conflicts as a Director
52. Standard VI(A): Recommended Procedures
53. Standard VI(A): Application of the Standard
53.1. Example 1 (Conflict of Interest and Business Relationships):
53.2. Example 2 (Conflict of Interest and Business Stock Ownership):
53.3. Example 3 (Conflict of Interest and Personal Stock Ownership):
53.4. Example 4 (Conflict of Interest and Personal Stock Ownership):
53.5. Example 5 (Conflict of Interest and Compensation Arrangements):
53.6. Example 6 (Conflict of Interest, Options, and Compensation Arrangements):
53.7. Example 7 (Conflict of Interest and Compensation Arrangements):
53.8. Example 8 (Conflict of Interest and Directorship):
53.9. Example 9 (Conflict of Interest and Personal Trading):
53.10. Example 10 (Conflict of Interest and Requested Favors):
53.11. Example 11 (Conflict of Interest and Business Relationships):
53.12. Example 12 (Disclosure of Conflicts to Employers):
54. Standard VI(B): Conflicts of Interest - Priority of Transactions
54.1. Guidance
54.1.1. Avoiding Potential Conflicts
54.1.2. Personal Trading Secondary to Trading for Clients
54.1.3. Standards for Nonpublic Information
54.1.4. Impact on All Accounts with Beneficial Ownership
55. Standard VI(B): Recommended Procedures
56. Standard VI(B): Application of the Standard
56.1. Example 1 (Personal Trading):
56.2. Example 2 (Trading for Family Member Account):
56.3. Example 3 (Family Accounts as Equals):
56.4. Example 4 (Personal Trading and Disclosure):
