CFA program curriculum 2018 level i (CFA curriculum 2018)

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ISBN 9781119396642 (ebk)


ETHICAL AND PROFESSIONAL
STANDARDS AND QUANTITATIVE
METHODS

CFA® PROGRAM CURRICULUM
2018 • Level I • Volume 1


TABLE OF CONTENTS

Cover
Copyright Page
2018 CFA Program Level I Volume 1 Ethical and Professional Standards and
Quantitative Methods
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Curriculum Development Process
Organization of the Curriculum
Features of the Curriculum
Required vs. Optional Segments [OPTIONAL]
End-of-Reading Problems/Solutions
Glossary and Index
LOS Self-Check
Source Material
Designing Your Personal Study Program
Create a Schedule
CFA Institute Topic Tests
CFA Institute Mock Exams
Preparatory Providers
Feedback
Ethical and Professional Standards
Study Session
Topic Level Learning Outcome
Study Session 1. Ethical and Professional Standards
Reading Assignments
Reading 1. Ethics and Trust in the Investment Profession
Learning Outcomes
1. Introduction
2. Ethics

3. Ethics and Professionalism
4. Challenges to Ethical Conduct
5. The Importance of Ethical Conduct in the Investment Industry
6. Ethical vs. Legal Standards
7. Ethical Decision-Making Frameworks
7.1. Applying the Framework
8. Conclusion
Summary
Practice Problems


Solutions
Reading 2. Code of Ethics and Standards of Professional Conduct
Learning Outcomes
Preface
Evolution of the CFA Institute Code of Ethics and Standards of
Professional Conduct
Standards of Practice Handbook
Summary of Changes in the Eleventh Edition
Inclusion of Updated CFA Institute Mission
Updated Code of Ethics Principle
New Standard Regarding Responsibilities of Supervisors [IV(C)]
Additional Requirement under the Standard for Communication
with Clients and Prospective Clients [V(B)]
Modification to Standard VII(A)
General Guidance and Example Revision
CFA Institute Professional Conduct Program
Adoption of the Code and Standards
Acknowledgments
Ethics and the Investment Industry

Why Ethics Matters
Ethics, Society, and the Capital Markets
Capital Market Sustainability and the Actions of One
The Relationship between Ethics and Regulations
Applying an Ethical Framework
Commitment to Ethics by Firms
Ethical Commitment of CFA Institute
CFA Institute Code of Ethics and Standards of Professional Conduct
Preamble
The Code of Ethics
Standards of Professional Conduct
Reading 3. Guidance for Standards I–VII
Learning Outcomes
Standard I: Professionalism
Standard I(A) Knowledge of the Law
Guidance
Relationship between the Code and Standards and Applicable
Law
Participation in or Association with Violations by Others
Investment Products and Applicable Laws
Recommended Procedures for Compliance
Members and Candidates
Distribution Area Laws


Legal Counsel
Dissociation
Firms
Application of the Standard
Example 1 (Notification of Known Violations):

Example 2 (Dissociating from a Violation):
Example 3 (Dissociating from a Violation):
Example 4 (Following the Highest Requirements):
Example 5 (Following the Highest Requirements):
Example 6 (Laws and Regulations Based on Religious Tenets):
Example 7 (Reporting Potential Unethical Actions):
Example 8 (Failure to Maintain Knowledge of the Law):
Standard I(B) Independence and Objectivity
Guidance
Buy-Side Clients
Fund Manager and Custodial Relationships
Investment Banking Relationships
Performance Measurement and Attribution
Public Companies
Credit Rating Agency Opinions
Influence during the Manager Selection/Procurement Process
Issuer-Paid Research
Travel Funding
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Travel Expenses):
Example 2 (Research Independence):
Example 3 (Research Independence and Intrafirm Pressure):
Example 4 (Research Independence and Issuer Relationship
Pressure):
Example 5 (Research Independence and Sales Pressure):
Example 6 (Research Independence and Prior Coverage):
Example 7 (Gifts and Entertainment from Related Party):
Example 8 (Gifts and Entertainment from Client):
Example 9 (Travel Expenses from External Manager):

Example 10 (Research Independence and Compensation
Arrangements):
Example 11 (Recommendation Objectivity and Service Fees):
Example 12 (Recommendation Objectivity):
Example 13 (Influencing Manager Selection Decisions):
Example 14 (Influencing Manager Selection Decisions):


Example 15 (Fund Manager Relationships):
Example 16 (Intrafirm Pressure):
Standard I(C) Misrepresentation
Guidance
Impact on Investment Practice
Performance Reporting
Social Media
Omissions
Plagiarism
Work Completed for Employer
Recommended Procedures for Compliance
Factual Presentations
Qualification Summary
Verify Outside Information
Maintain Webpages
Plagiarism Policy
Application of the Standard
Example 1 (Disclosure of Issuer-Paid Research):
Example 2 (Correction of Unintentional Errors):
Example 3 (Noncorrection of Known Errors):
Example 4 (Plagiarism):
Example 5 (Misrepresentation of Information):

Example 6 (Potential Information Misrepresentation):
Example 7 (Plagiarism):
Example 8 (Plagiarism):
Example 9 (Plagiarism):
Example 10 (Plagiarism):
Example 11 (Misrepresentation of Information):
Example 12 (Misrepresentation of Information):
Example 13 (Avoiding a Misrepresentation):
Example 14 (Misrepresenting Composite Construction):
Example 15 (Presenting Out-of-Date Information):
Example 16 (Overemphasis of Firm Results):
Standard I(D) Misconduct
Guidance
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Professionalism and Competence):
Example 2 (Fraud and Deceit):
Example 3 (Fraud and Deceit):
Example 4 (Personal Actions and Integrity):


Example 5 (Professional Misconduct):
Standard II: Integrity of Capital Markets
Standard II(A) Material Nonpublic Information
Guidance
What Is “Material” Information?
What Constitutes “Nonpublic” Information?
Mosaic Theory
Social Media
Using Industry Experts

Investment Research Reports
Recommended Procedures for Compliance
Achieve Public Dissemination
Adopt Compliance Procedures
Adopt Disclosure Procedures
Issue Press Releases
Firewall Elements
Appropriate Interdepartmental Communications
Physical Separation of Departments
Prevention of Personnel Overlap
A Reporting System
Personal Trading Limitations
Record Maintenance
Proprietary Trading Procedures
Communication to All Employees
Application of the Standard
Example 1 (Acting on Nonpublic Information):
Example 2 (Controlling Nonpublic Information):
Example 3 (Selective Disclosure of Material Information):
Example 4 (Determining Materiality):
Example 5 (Applying the Mosaic Theory):
Example 6 (Applying the Mosaic Theory):
Example 7 (Analyst Recommendations as Material Nonpublic
Information):
Example 8 (Acting on Nonpublic Information):
Example 9 (Mosaic Theory):
Example 10 (Materiality Determination):
Example 11 (Using an Expert Network):
Example 12 (Using an Expert Network):
Standard II(B) Market Manipulation

Guidance
Information-Based Manipulation
Transaction-Based Manipulation


Application of the Standard
Example 1 (Independent Analysis and Company Promotion):
Example 2 (Personal Trading Practices and Price):
Example 3 (Creating Artificial Price Volatility):
Example 4 (Personal Trading and Volume):
Example 5 (“Pump-Priming” Strategy):
Example 6 (Creating Artificial Price Volatility):
Example 7 (Pump and Dump Strategy):
Example 8 (Manipulating Model Inputs):
Example 9 (Information Manipulation):
Standard III: Duties to Clients
Standard III(A) Loyalty, Prudence, and Care
Guidance
Understanding the Application of Loyalty, Prudence, and Care
Identifying the Actual Investment Client
Developing the Client’s Portfolio
Soft Commission Policies
Proxy Voting Policies
Recommended Procedures for Compliance
Regular Account Information
Client Approval
Firm Policies
Application of the Standard
Example 1 (Identifying the Client—Plan Participants):
Example 2 (Client Commission Practices):

Example 3 (Brokerage Arrangements):
Example 4 (Brokerage Arrangements):
Example 5 (Client Commission Practices):
Example 6 (Excessive Trading):
Example 7 (Managing Family Accounts):
Example 8 (Identifying the Client):
Example 9 (Identifying the Client):
Example 10 (Client Loyalty):
Example 11 (Execution-Only Responsibilities):
Standard III(B) Fair Dealing
Guidance
Investment Recommendations
Investment Action
Recommended Procedures for Compliance
Develop Firm Policies
Disclose Trade Allocation Procedures
Establish Systematic Account Review


Disclose Levels of Service
Application of the Standard
Example 1 (Selective Disclosure):
Example 2 (Fair Dealing between Funds):
Example 3 (Fair Dealing and IPO Distribution):
Example 4 (Fair Dealing and Transaction Allocation):
Example 5 (Selective Disclosure):
Example 6 (Additional Services for Select Clients):
Example 7 (Minimum Lot Allocations):
Example 8 (Excessive Trading):
Example 9 (Limited Social Media Disclosures):

Example 10 (Fair Dealing between Clients):
Standard III(C) Suitability
Guidance
Developing an Investment Policy
Understanding the Client’s Risk Profile
Updating an Investment Policy
The Need for Diversification
Addressing Unsolicited Trading Requests
Managing to an Index or Mandate
Recommended Procedures for Compliance
Investment Policy Statement
Regular Updates
Suitability Test Policies
Application of the Standard
Example 1 (Investment Suitability—Risk Profile):
Example 2 (Investment Suitability—Entire Portfolio):
Example 3 (IPS Updating):
Example 4 (Following an Investment Mandate):
Example 5 (IPS Requirements and Limitations):
Example 6 (Submanager and IPS Reviews):
Example 7 (Investment Suitability—Risk Profile):
Example 8 (Investment Suitability):
Standard III(D) Performance Presentation
Guidance
Recommended Procedures for Compliance
Apply the GIPS Standards
Compliance without Applying GIPS Standards
Application of the Standard
Example 1 (Performance Calculation and Length of Time):
Example 2 (Performance Calculation and Asset Weighting):

Example 3 (Performance Presentation and Prior


Fund/Employer):
Example 4 (Performance Presentation and Simulated Results):
Example 5 (Performance Calculation and Selected Accounts
Only):
Example 6 (Performance Attribution Changes):
Example 7 (Performance Calculation Methodology Disclosure):
Example 8 (Performance Calculation Methodology Disclosure):
Standard III(E) Preservation of Confidentiality
Guidance
Status of Client
Compliance with Laws
Electronic Information and Security
Professional Conduct Investigations by CFA Institute
Recommended Procedures for Compliance
Communicating with Clients
Application of the Standard
Example 1 (Possessing Confidential Information):
Example 2 (Disclosing Confidential Information):
Example 3 (Disclosing Possible Illegal Activity):
Example 4 (Disclosing Possible Illegal Activity):
Example 5 (Accidental Disclosure of Confidential Information):
Standard IV: Duties to Employers
Standard IV(A) Loyalty
Guidance
Employer Responsibilities
Independent Practice
Leaving an Employer

Use of Social Media
Whistleblowing
Nature of Employment
Recommended Procedures for Compliance
Competition Policy
Termination Policy
Incident-Reporting Procedures
Employee Classification
Application of the Standard
Example 1 (Soliciting Former Clients):
Example 2 (Former Employer’s Documents and Files):
Example 3 (Addressing Rumors):
Example 4 (Ownership of Completed Prior Work):
Example 5 (Ownership of Completed Prior Work):
Example 6 (Soliciting Former Clients):


Example 7 (Starting a New Firm):
Example 8 (Competing with Current Employer):
Example 9 (Externally Compensated Assignments):
Example 10 (Soliciting Former Clients):
Example 11 (Whistleblowing Actions):
Example 12 (Soliciting Former Clients):
Example 13 (Notification of Code and Standards):
Example 14 (Leaving an Employer):
Example 15 (Confidential Firm Information):
Standard IV(B) Additional Compensation Arrangements
Guidance
Recommended Procedures for Compliance
Application of the Standard

Example 1 (Notification of Client Bonus Compensation):
Example 2 (Notification of Outside Compensation):
Example 3 (Prior Approval for Outside Compensation):
Standard IV(C) Responsibilities of Supervisors
Guidance
System for Supervision
Supervision Includes Detection
Recommended Procedures for Compliance
Codes of Ethics or Compliance Procedures
Adequate Compliance Procedures
Implementation of Compliance Education and Training
Establish an Appropriate Incentive Structure
Application of the Standard
Example 1 (Supervising Research Activities):
Example 2 (Supervising Research Activities):
Example 3 (Supervising Trading Activities):
Example 4 (Supervising Trading Activities and Record Keeping):
Example 5 (Accepting Responsibility):
Example 6 (Inadequate Procedures):
Example 7 (Inadequate Supervision):
Example 8 (Supervising Research Activities):
Example 9 (Supervising Research Activities):
Standard V: Investment Analysis, Recommendations, and Actions
Standard V(A) Diligence and Reasonable Basis
Guidance
Defining Diligence and Reasonable Basis
Using Secondary or Third-Party Research
Using Quantitatively Oriented Research
Developing Quantitatively Oriented Techniques

Selecting External Advisers and Subadvisers
Group Research and Decision Making
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Sufficient Due Diligence):
Example 2 (Sufficient Scenario Testing):
Example 3 (Developing a Reasonable Basis):
Example 4 (Timely Client Updates):
Example 5 (Group Research Opinions):
Example 6 (Reliance on Third-Party Research):
Example 7 (Due Diligence in Submanager Selection):
Example 8 (Sufficient Due Diligence):
Example 9 (Sufficient Due Diligence):
Example 10 (Sufficient Due Diligence):
Example 11 (Use of Quantitatively Oriented Models):
Example 12 (Successful Due Diligence/Failed Investment):
Example 13 (Quantitative Model Diligence):
Example 14 (Selecting a Service Provider):
Example 15 (Subadviser Selection):
Example 16 (Manager Selection):
Example 17 (Technical Model Requirements):
Standard V(B) Communication with Clients and Prospective Clients
Guidance
Informing Clients of the Investment Process
Different Forms of Communication
Identifying Risks and Limitations
Report Presentation
Distinction between Facts and Opinions in Reports
Recommended Procedures for Compliance

Application of the Standard
Example 1 (Sufficient Disclosure of Investment System):
Example 2 (Providing Opinions as Facts):
Example 3 (Proper Description of a Security):
Example 4 (Notification of Fund Mandate Change):
Example 5 (Notification of Fund Mandate Change):
Example 6 (Notification of Changes to the Investment Process):
Example 7 (Notification of Changes to the Investment Process):
Example 8 (Notification of Changes to the Investment Process):
Example 9 (Sufficient Disclosure of Investment System):
Example 10 (Notification of Changes to the Investment
Process):


Example 11 (Notification of Errors):
Example 12 (Notification of Risks and Limitations):
Example 13 (Notification of Risks and Limitations):
Example 14 (Notification of Risks and Limitations):
Standard V(C) Record Retention
Guidance
New Media Records
Records Are Property of the Firm
Local Requirements
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Record Retention and IPS Objectives and
Recommendations):
Example 2 (Record Retention and Research Process):
Example 3 (Records as Firm, Not Employee, Property):
Standard VI: Conflicts of Interest

Standard VI(A) Disclosure of Conflicts
Guidance
Disclosure of Conflicts to Employers
Disclosure to Clients
Cross-Departmental Conflicts
Conflicts with Stock Ownership
Conflicts as a Director
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Conflict of Interest and Business Relationships):
Example 2 (Conflict of Interest and Business Stock Ownership):
Example 3 (Conflict of Interest and Personal Stock Ownership):
Example 4 (Conflict of Interest and Personal Stock Ownership):
Example 5 (Conflict of Interest and Compensation
Arrangements):
Example 6 (Conflict of Interest, Options, and Compensation
Arrangements):
Example 7 (Conflict of Interest and Compensation
Arrangements):
Example 8 (Conflict of Interest and Directorship):
Example 9 (Conflict of Interest and Personal Trading):
Example 10 (Conflict of Interest and Requested Favors):
Example 11 (Conflict of Interest and Business Relationships):
Example 12 (Disclosure of Conflicts to Employers):
Standard VI(B) Priority of Transactions
Guidance


Avoiding Potential Conflicts
Personal Trading Secondary to Trading for Clients

Standards for Nonpublic Information
Impact on All Accounts with Beneficial Ownership
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Personal Trading):
Example 2 (Trading for Family Member Account):
Example 3 (Family Accounts as Equals):
Example 4 (Personal Trading and Disclosure):
Example 5 (Trading Prior to Report Dissemination):
Standard VI(C) Referral Fees
Guidance
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Disclosure of Referral Arrangements and Outside
Parties):
Example 2 (Disclosure of Interdepartmental Referral
Arrangements):
Example 3 (Disclosure of Referral Arrangements and Informing
Firm):
Example 4 (Disclosure of Referral Arrangements and Outside
Organizations):
Example 5 (Disclosure of Referral Arrangements and Outside
Parties):
Standard VII: Responsibilities as a CFA Institute Member or CFA
Candidate
Standard VII(A) Conduct as Participants in CFA Institute Programs
Guidance
Confidential Program Information
Additional CFA Program Restrictions
Expressing an Opinion

Application of the Standard
Example 1 (Sharing Exam Questions):
Example 2 (Bringing Written Material into Exam Room):
Example 3 (Writing after Exam Period End):
Example 4 (Sharing Exam Content):
Example 5 (Sharing Exam Content):
Example 6 (Sharing Exam Content):
Example 7 (Discussion of Exam Grading Guidelines and
Results):
Example 8 (Compromising CFA Institute Integrity as a


Volunteer):
Example 9 (Compromising CFA Institute Integrity as a
Volunteer):
Standard VII(B) Reference to CFA Institute, the CFA Designation,
and the CFA Program
Guidance
CFA Institute Membership
Using the CFA Designation
Referring to Candidacy in the CFA Program
Proper Usage of the CFA Marks
Recommended Procedures for Compliance
Application of the Standard
Example 1 (Passing Exams in Consecutive Years):
Example 2 (Right to Use CFA Designation):
Example 3 (“Retired” CFA Institute Membership Status):
Example 4 (CFA Logo—Individual Use Only):
Example 5 (Stating Facts about CFA Designation and Program):
Example 6 (Order of Professional and Academic Designations):

Example 7 (Use of Fictitious Name):
Practice Problems
Solutions
Reading 4. Introduction to the Global Investment Performance Standards
(GIPS®)
Learning Outcomes
I. Why Were the GIPS Standards Created?
II. Who Can Claim Compliance?
III. Who Benefits from Compliance?
IV. Composites
V. Verification
VI. The Structure of the GIPS Standards
Reading 5. The GIPS Standards
Learning Outcomes
Preface [OPTIONAL]
History [OPTIONAL]
Introduction
Preamble—Why Is a Global Investment Performance Standard
Needed?
Standardized Investment Performance
Global Passport
Investor Confidence
Objectives
Overview


Historical Performance Record
Compliance
Effective Date
Implementing a Global Standard

Sponsors [OPTIONAL]
Endorsed GIPS Sponsors (as of 1 January 2010) [OPTIONAL]
I. Provisions of the Global Investment Performance Standards
0. Fundamentals of Compliance
1. Input Data [OPTIONAL]
2. Calculation Methodology [OPTIONAL]
3. Composite Construction [OPTIONAL]
4. Disclosure [OPTIONAL]
5. Presentation and Reporting [OPTIONAL]
6. Real Estate [OPTIONAL]
Real Estate—Requirements [OPTIONAL]
The following provisions are additional requirements for real
estate closed-end fund composites: [OPTIONAL]
Real Estate—Recommendations [OPTIONAL]
The following provision is an additional recommendation for
real estate closed-end fund composites: [OPTIONAL]
7. Private Equity [OPTIONAL]
Private Equity—Requirements [OPTIONAL]
Private Equity—Recommendations [OPTIONAL]
Composite Construction—Recommendations (the following
provision does not apply: 3.B.2) [OPTIONAL]
8. Wrap Fee/Separately Managed Account (SMA) Portfolios
[OPTIONAL]
Wrap Fee/SMA Requirements [OPTIONAL]
II. GIPS Valuation Principles [OPTIONAL]
Fair Value Definition [OPTIONAL]
Valuation Requirements [OPTIONAL]
Additional Real Estate Valuation Requirements [OPTIONAL]
Additional Private Equity Valuation Requirements [OPTIONAL]
Valuation Recommendations [OPTIONAL]

Additional Real Estate Valuation Recommendations
[OPTIONAL]
Additional Private Equity Valuation Recommendations
[OPTIONAL]
III. GIPS Advertising Guidelines [OPTIONAL]
Purpose of the GIPS Advertising Guidelines [OPTIONAL]
Definition of Advertisement [OPTIONAL]
Relationship of GIPS Advertising Guidelines to Regulatory


Requirements [OPTIONAL]
Other Information [OPTIONAL]
Requirements of the GIPS Advertising Guidelines [OPTIONAL]
IV. Verification [OPTIONAL]
Scope and Purpose of Verification [OPTIONAL]
Required Verification Procedures [OPTIONAL]
Performance Examinations [OPTIONAL]
V. GIPS Glossary
Appendix A: Sample Compliant Presentations
Appendix B: Sample Advertisements [OPTIONAL]
Appendix C: Sample List of Composite Descriptions [OPTIONAL]
Practice Problems
Solutions
Quantitative Methods
Study Sessions
Topic Level Learning Outcome
Study Session 2. Quantitative Methods: Basic Concepts
Reading Assignments
Reading 6. The Time Value of Money
Learning Outcomes

1. Introduction
2. Interest Rates: Interpretation
3. The Future Value of a Single Cash Flow
3.1. The Frequency of Compounding
3.2. Continuous Compounding
3.3. Stated and Effective Rates
4. The Future Value of a Series of Cash Flows
4.1. Equal Cash Flows—Ordinary Annuity
4.2. Unequal Cash Flows
5. The Present Value of a Single Cash Flow
5.1. Finding the Present Value of a Single Cash Flow
5.2. The Frequency of Compounding
6. The Present Value of a Series of Cash Flows
6.1. The Present Value of a Series of Equal Cash Flows
6.2. The Present Value of an Infinite Series of Equal Cash Flows—
Perpetuity
6.3. Present Values Indexed at Times Other than t = 0
6.4. The Present Value of a Series of Unequal Cash Flows
7. Solving for Rates, Number of Periods, or Size of Annuity Payments
7.1. Solving for Interest Rates and Growth Rates
7.2. Solving for the Number of Periods
7.3. Solving for the Size of Annuity Payments


7.4. Review of Present and Future Value Equivalence
7.5. The Cash Flow Additivity Principle
Summary
Practice Problems
Solutions
Reading 7. Discounted Cash Flow Applications

Learning Outcomes
1. Introduction
2. Net Present Value and Internal Rate of Return
2.1. Net Present Value and the Net Present Value Rule
2.2. The Internal Rate of Return and the Internal Rate of Return Rule
2.3. Problems with the IRR Rule
3. Portfolio Return Measurement
3.1. Money-Weighted Rate of Return
3.2. Time-Weighted Rate of Return
4. Money Market Yields
Summary
References
Practice Problems
Solutions
Reading 8. Statistical Concepts and Market Returns
Learning Outcomes
1. Introduction
2. Some Fundamental Concepts
2.1. The Nature of Statistics
2.2. Populations and Samples
2.3. Measurement Scales
3. Summarizing Data Using Frequency Distributions
4. The Graphic Presentation of Data
4.1. The Histogram
4.2. The Frequency Polygon and the Cumulative Frequency
Distribution
5. Measures of Central Tendency
5.1. The Arithmetic Mean
5.1.1. The Population Mean
5.1.2. The Sample Mean

5.1.3. Properties of the Arithmetic Mean
5.2. The Median
5.3. The Mode
5.4. Other Concepts of Mean
5.4.1. The Weighted Mean
5.4.2. The Geometric Mean


5.4.3. The Harmonic Mean
6. Other Measures of Location: Quantiles
6.1. Quartiles, Quintiles, Deciles, and Percentiles
6.2. Quantiles in Investment Practice
7. Measures of Dispersion
7.1. The Range
7.2. The Mean Absolute Deviation
7.3. Population Variance and Population Standard Deviation
7.3.1. Population Variance
7.3.2. Population Standard Deviation
7.4. Sample Variance and Sample Standard Deviation
7.4.1. Sample Variance
7.4.2. Sample Standard Deviation
7.5. Semivariance, Semideviation, and Related Concepts
7.6. Chebyshev’s Inequality
7.7. Coefficient of Variation
7.8. The Sharpe Ratio
8. Symmetry and Skewness in Return Distributions
9. Kurtosis in Return Distributions
10. Using Geometric and Arithmetic Means
Summary
References

Practice Problems
Solutions
Reading 9. Probability Concepts
Learning Outcomes
1. Introduction
2. Probability, Expected Value, and Variance
3. Portfolio Expected Return and Variance of Return
4. Topics in Probability
4.1. Bayes’ Formula
4.2. Principles of Counting
Summary
References
Practice Problems
Solutions
Study Session 3. Quantitative Methods: Application
Reading Assignments
Reading 10. Common Probability Distributions
Learning Outcomes
1. Introduction to Common Probability Distributions
2. Discrete Random Variables


2.1. The Discrete Uniform Distribution
2.2. The Binomial Distribution
3. Continuous Random Variables
3.1. Continuous Uniform Distribution
3.2. The Normal Distribution
3.3. Applications of the Normal Distribution
3.4. The Lognormal Distribution
4. Monte Carlo Simulation

Summary
References
Practice Problems
Solutions
Reading 11. Sampling and Estimation
Learning Outcomes
1. Introduction
2. Sampling
2.1. Simple Random Sampling
2.2. Stratified Random Sampling
2.3. Time-Series and Cross-Sectional Data
3. Distribution of the Sample Mean
3.1. The Central Limit Theorem
4. Point and Interval Estimates of the Population Mean
4.1. Point Estimators
4.2. Confidence Intervals for the Population Mean
4.3. Selection of Sample Size
5. More on Sampling
5.1. Data-Mining Bias
5.2. Sample Selection Bias
5.3. Look-Ahead Bias
5.4. Time-Period Bias
Summary
References
Practice Problems
Solutions
Reading 12. Hypothesis Testing
Learning Outcomes
1. Introduction
2. Hypothesis Testing

3. Hypothesis Tests Concerning the Mean
3.1. Tests Concerning a Single Mean
3.2. Tests Concerning Differences between Means
3.3. Tests Concerning Mean Differences


4. Hypothesis Tests Concerning Variance
4.1. Tests Concerning a Single Variance
4.2. Tests Concerning the Equality (Inequality) of Two Variances
5. Other Issues: Nonparametric Inference
5.1. Tests Concerning Correlation: The Spearman Rank Correlation
Coefficient
5.2. Nonparametric Inference: Summary
Summary
References
Practice Problems
Solutions
Reading 13. Technical Analysis
Learning Outcomes
1. Introduction
2. Technical Analysis: Definition and Scope
2.1. Principles and Assumptions
2.2. Technical and Fundamental Analysis
3. Technical Analysis Tools
3.1. Charts
3.1.1. Line Chart
3.1.2. Bar Chart
3.1.3. Candlestick Chart
3.1.4. Point and Figure Chart
3.1.5. Scale

3.1.6. Volume
3.1.7. Time Intervals
3.1.8. Relative Strength Analysis
3.2. Trend
3.3. Chart Patterns
3.3.1. Reversal Patterns
3.3.1.1. Head and Shoulders
3.3.1.2. Inverse Head and Shoulders
3.3.1.3. Setting Price Targets with Head and Shoulders
Pattern
3.3.1.4. Setting Price Targets with Inverse Head and
Shoulders Pattern
3.3.1.5. Double Tops and Bottoms
3.3.1.6. Triple Tops and Bottoms
3.3.2. Continuation Patterns
3.3.2.1. Triangles
3.3.2.2. Rectangle Pattern
3.3.2.3. Flags and Pennants


3.4. Technical Indicators
3.4.1. Price-Based Indicators
3.4.1.1. Moving Average
3.4.1.2. Bollinger Bands
3.4.2. Momentum Oscillators
3.4.2.1. Momentum or Rate of Change Oscillator
3.4.2.2. Relative Strength Index
3.4.2.3. Stochastic Oscillator
3.4.2.4. Moving-Average Convergence/Divergence
Oscillator

3.4.3. Sentiment Indicators
3.4.3.1. Opinion Polls
3.4.3.2. Calculated Statistical Indexes
3.4.4. Flow-of-Funds Indicators
3.4.4.1. Arms Index
3.4.4.2. Margin Debt
3.4.4.3. Mutual Fund Cash Position
3.4.4.4. New Equity Issuance
3.4.4.5. Secondary Offerings
3.5. Cycles
3.5.1. Kondratieff Wave
3.5.2. 18-Year Cycle
3.5.3. Decennial Pattern
3.5.4. Presidential Cycle
4. Elliott Wave Theory
5. Intermarket Analysis
Summary
Practice Problems
Solutions
Appendices
Glossary
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B
C
D
E
F
G
H
I

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2018 CFA Program Level I Volume 2 Economics
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Curriculum Development Process
Organization of the Curriculum
Features of the Curriculum
Required vs. Optional Segments [OPTIONAL]
End-of-Reading Problems/Solutions
Glossary and Index
LOS Self-Check
Source Material

Designing Your Personal Study Program
Create a Schedule
CFA Institute Topic Tests
CFA Institute Mock Exams
Preparatory Providers
Feedback
Economics
Study Sessions
Topic Level Learning Outcome
Study Session 4. Economics: Microeconomics and Macroeconomics
Reading Assignments
Reading 14. Topics in Demand and Supply Analysis
Learning Outcomes
1. Introduction
2. Demand Analysis: The Consumer
2.1. Demand Concepts


2.2. Own-Price Elasticity of Demand
2.2.1. Extremes of Price Elasticity
2.2.2. Predicting Demand Elasticity
2.2.3. Elasticity and Total Expenditure
2.3. Income Elasticity of Demand
2.4. Cross-Price Elasticity of Demand
2.5. Substitution and Income Effects
2.6. Normal and Inferior Goods
3. Supply Analysis: The Firm
3.1. Marginal Returns and Productivity
3.1.1. Productivity: The Relationship between Production and
Cost

3.1.2. Total, Average, and Marginal Product of Labor
3.2. Breakeven and Shutdown Analysis
3.2.1. Economic Cost vs. Accounting Cost
3.2.2. Marginal Revenue, Marginal Cost, and Profit Maximization
3.2.3. Understanding the Interaction between Total, Variable,
Fixed, and Marginal Cost and Output
3.2.4. Revenue under Conditions of Perfect and Imperfect
Competition
3.2.5. Profit-Maximization, Breakeven, and Shutdown Points of
Production
3.2.6. Breakeven Analysis
3.2.7. The Shutdown Decision
3.3. Understanding Economies and Diseconomies of Scale
3.3.1. Short- and Long-Run Cost Curves
3.3.2. Defining Economies of Scale and Diseconomies of Scale
Summary
Practice Problems
Solutions
Reading 15. The Firm and Market Structures
Learning Outcomes
1. Introduction
2. Analysis of Market Structures
2.1. Economists’ Four Types of Structure
2.2. Factors That Determine Market Structure
3. Perfect Competition
3.1. Demand Analysis in Perfectly Competitive Markets
3.1.1. Elasticity of Demand
3.1.2. Other Factors Affecting Demand
3.1.3. Consumer Surplus: Value Minus Expenditure
3.2. Supply Analysis in Perfectly Competitive Markets