In Practice Summary: Assessing the CFA® Program’s Value

in-practice-summary:-assessing-the-cfa-program’s-value

How do CFA charterholders compare with their non-charterholding peers?

Specifically, how does the CFA designation impact the performance of sell-side analysts who make stock recommendations?

Since sell-side stock recommendations are key inputs to many stock-selection processes, this is not merely an academic question. It is also important to markets, which depend on the accuracy of the price discovery process, and to regulators, who bear some responsibility for creating and maintaining well-functioning markets with efficient price discovery.

The issue is of considerable concern to sell-side analysts themselves — and to investment professionals more widely — who must commit substantial time to learning the CFA Program curriculum and studying for the exams.

Until now, there was little quantitative evidence about the effects — beneficial or otherwise — of the CFA Program. But a trio of researchers just addressed that deficit. This In Practice summary gives a practitioner’s perspective on the article, “Sell-Side Financial Analysts and the CFA® Program,” by Qiang Kang, Xi Li, and Tie Su, CFA, published in the CFA Institute Financial Analysts Journal®.

How do the authors tackle the issue?

First, to determine if the CFA Program improves investment predictions, the researchers examine the recommendations of around 9,900 sell-side analysts between 1993 and 2015. They divide the period into two sections — 1993–2000 and 2001–2015 — to see if the increase in analyst-related regulation after 2000 would skew performance.

For each analyst, the authors first create a recommendation portfolio composed of long positions in stocks that the analyst rated 1 or 2 and short positions in stocks that the analyst rated 4 or 5. The researchers then calculate equal-weighted returns for each portfolio. The authors believe the recommendation portfolio is a better proxy for performance than an examination of earnings forecasts used in previous studies.

Second, the research team measures career progression by how many times an analyst was included on Institutional Investor’s All-America Research Team. Becoming an All-America Research Team analyst is widely considered evidence of successful performance, meriting better chances of promotion and higher pay as well as a larger profile within the industry.

What are the findings?

The authors find that of the 9,843 analysts whose performance was evaluated, 3,386 of them (about a third) are CFA charterholders. Since analysts have no formal certification requirements, the researchers conclude that this fact alone provides anecdotal evidence that the CFA Program offers benefits to analysts and their employers.

More concretely, the recommendation performance of CFA charterholders improves by about 4.7% a year in terms of abnormal returns, based on the recommendation portfolios, according to the data. There is also a 0.058 improvement in the information ratio, a measure of risk-adjusted return.

The chances that a CFA charterholder will be named to Institutional Investor’s annual All-America Research Team also increase, by around 2 percentage points, which means a CFA charterholder analyst is about one-fifth more likely to earn the honor than a non-charterholder.

The effects of a CFA designation on performance and career prospects was more or less equal in both time periods, so the increased regulations post-2000 does not have a material impact.

What are the implications for investors and investment professionals?

The study indicates that CFA charterholders outperform their peers as stock pickers and in career outcomes, at least in US sell-side research.

This has practical importance, not least for analysts and would-be analysts considering becoming CFA Program candidates. Potential CFA charterholders have to decide: Is this for me?

That’s no small decision, since each of the levels of the CFA Program requires 300-plus hours of preparation via a challenging self-study curriculum. Candidates also must accrue four years’ work experience in the investment decision-making process. Evidence that the CFA Program, on average, improves career outcomes, may persuade more people to make the necessary sacrifices.

But the findings also have industry-wide implications. According to CFA Institute, regulators, colleges, and certification programs in more than 30 countries and territories view the CFA charter as a way to fill the gap left by the absence of mandatory qualifications. In some countries — including the United States, the United Kingdom, and Singapore — regulators consider the CFA designation a mark of competency.

Some investors want regulators to go further and make the CFA Program a licensing requirement. Studies like this, that demonstrate the program empirically improves analysts’ competency, may help strengthen their case.

This article is an In Practice summary of “Sell-Side Financial Analysts and the CFA® Program” by Qiang Kang, Xi Li, and Tie Su, CFA, from the CFA Institute Financial Analysts Journal®.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/erhui1979


Mark Harrison, CFA

Mark Harrison, CFA, was director of journal publications at CFA Institute, where he supported a suite of member publications, including the Financial Analysts Journal, In Practice summaries, and CFA Digest. He has more than 12 years of investment experience as a portfolio manager and securities analyst. Harrison is a graduate of the University of Oxford.


Phil Davis

Phil Davis is a former Financial Times journalist. He writes articles, blogs, and speeches about investments, pensions, regulation, and ESG issues for asset management clients.

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