Tài liệu CFA 2010 Level 3 Outline doc

state the six components of the Code of Ethics and the seven Standards of Professional Conduct; summarize the ethical responsibilities required by the Code of Ethics and the Standards

he readings in this study session establish a framework for ethical conduct in

the investment profession The principles and guidance presented in the CFA Institute Standards of Practice Handbook (SOPH) form the basis for the CFA Institute self-regulatory program to maintain the highest professional standards among investment practitioners A clear understanding of the CFA Institute Code

of Ethics and Standards of Professional Conduct (both.found in the SOPH) should

allow:practitioners to identify andappropriately resolve ethical conflicts, leading, toa reputation for integrity that benefits both the individual and the profession Material under “Guidance” in the SOPH addresses the practical application of the Code and Standards The guidance for each standard reviews its purpose and scope, presents recommended procedures for compliance, and provides examples

of the standard in practice

Standards of Practice Handbook, Ninth Edition

Standards of Practice Handbook, Ninth Edition

The candidate should be able to:

a describe the structure of the CFA Institute Professional Conduct Program and the disdplinary review process for the enforcement of the Code of Ethics and

Standards of Professional Conduct;

b state the six components of the Code of Ethics and the seven Standards of

Professional Conduct;

summarize the ethical responsibilities required by the Code of Ethics and the

Standards of Professional Conduct, including the multiple sub-sections of each standard

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b recommend practices and procedures designed to prevent violations of the Code

of Ethics and Standards of Professional Conduct

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sing examples and case studies, the readings in this study session

demonstrate the use of the CFA Institute Code of Ethics and Standards of Professional Conduct as a body of principles for ethical reasoning and decision making, The readings serve as effective aids in understanding and intemalizing the values and standards presented in the CFA Institute Standards of Practice Handbook By applying the Code and Standards to case study conflicts, the candidate will\ ain experience identifyingiand'explaining fundamentalyprinciples

of conduet thạt serve as the basis for dealing with real world challenges

The Asset Manager Code of Professional Conduct uses the basic tenets of the CFA Institute Code of Ethics and Standards of Professional Conduct to establish ethical and professional standards for firms managing client assets The Asset Manager Code of Professional Conduct also extends the Code and Standards to address investment management firm practices regarding trading, compliance, security pricing, and disclosure

Ethics in Practice, by Philip Lawton, CFA

Ethics Cases

Ethics Cases

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Study Session 2

LEARNING OUTCOMES

Reading 3: Ethics in Practice

The candidate should be able to:

a summarize the ethical responsibilities required by each of the six provisions of the Code of Ethics and the seven categories of the Standards of Professional

Conduct;

b interpret the Code of Ethics and Standards of Professional Conduct in situations involving issues of professional integrity and formulate corrective actions where appropriate

Reading 4: The Consultant

The candidate should be able to:

a evaluate professional conduct and formulate an appropriate response to actions that violate the Code of Ethics and Standards of Professional Conduct;

b prepare appropriate policy and procedural changes needed to assure compliance with the Code of Ethics and Standards of Professional Conduct

Reading 5: Pearl Investment Management (A), (B), and (C)

The candidate should be able to:

a evaluate professional conduct and formulate an appropriate response to actions that violate the Code of Ethics and Standards of Professional.Conduct:

b prepare appropriate policy and procedural changes needed to assure compliance with the Code of Ethics and Standards of Professional Conduct

Reading 6: Asset Manager Code of Professional Conduct

The candidate should be able to:

a summarize the ethical responsibilities required by the six components of the Asset Manager Code;

ehavioral finances introduced in the first study session on portfolio

management because an understanding of the psychological factors that

affect investment decision making is relevant for the management of both private

wealth and institutional assets, Behavioral finance provides practical insight to

investors’ perceptions and preferences regarding financial risk, making it a

valuable aid to understanding client goals and.concerns The analysis of

investment decision making fromya behavioral finance perspective mayialso

provide an explanation for certain market inefficiencies and suggest investment

strategies to exploit them

Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, by Hersh Shefrin

Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, by Hersh Shefrin

Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, by Hersh Shefrin

Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, by Hersh Shefrin

Pensions

Global Equity Strategy, by James Montier Financial Analysts Journal

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Some of the behavioral concepts presented in this study session are developed across multiple readings Candidates should consider the readings as a whole in mastering the Learning Outcome Statements

Study Session 3

LEARNING OUTCOMES

Reading 7: Heuristic-Driven Bias: The First Theme

The candidate should be able to evaluate the impact of heuristic-driven biases

on investment decision making, including representativeness, overconfidence, anchoring-and-adjustment, and aversion to ambiguity

Reading 8: Frame Dependence: The Second Theme

The candidate should be able to:

a explain how loss aversion can result in investors’ willingness to hold on to

deteriorating investment positions;

b evaluate the impact that the emotional frames of self-control, regret

minimization, and money illusion have on investor behavior

Reading 9: Inefficient Markets: The Third Theme

The candidate should be able to:

a evaluate the impact that representativeness, conservatism (anchoring-and-

adjustment), and frame dependence may have on security pricing and discuss the implications for market efficiency;

Reading 10:Portfolios "Pyramids, Emotions,-and Biases

The candidate should be able to:

a discuss the influence of hope and fear on investors’ desire for security and

investment potential;

b explain how portfolios can be structured as layered pyramids and how such

structures address needs associated with security, potential, and aspiration;

c evaluate the impact of excessive optimism and overconfidence on investors’

decisions regarding portfolio construction

Reading 11: Investment Decision Making in Defined Contribution Pension Plans

The candidate should be able to:

a explain how limited participant knowledge and bounds to rationality, self-control, and self-interest may lead defined-contribution (DC) plan participants to

construct inefficient investment portfolios;

b evaluate the impact of status quo bias, myopic loss aversion, 1/n diversification, and the endorsement effect on DC plan participants’ investment decisions and the risk profile of their investment plans;

c discuss the factors that may contribute to DC plan participants holding “excess” amounts of their own company’s stock in their plan

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Study Session 3

Reading 12: Global Equity Strategy: The Folly of Forecasting: Ignore All Economists, Strategists, and Analysts

The candidate should be able to:

a explain how the illusions of knowledge and control lead expert forecasters to be overconfident in their forecasting skills;

Reading 13: Alpha Hunters and Beta Grazers

The candidate should be able to:

a contrast chronic market inefficiencies with acute inefficiencies and describe the behavioral factors (such as convoy behavior, Bayesian rigidity, price-target

revisionism, and the ebullience cycle) that may give rise to chronic market

inefficiencies;

explain the portfolio rebalancing behavior of holders, rebalancers, valuators, and shifters and evaluate the impact these rebalancing behaviors have on market efficiency

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his study session addresses the process of private wealth management and

the construction of an investment policy statement for the individual investor The investment policy statement is a blueprint for investing client assets—it identifies the needs, goals, and risk tolerance of the investor, as well as constraints

under which the investment portfolio must operate, and then formulates an

investment strategy to tax-efficiently reconcile these potentially conflicting

requirements:

Because taxes and regulations vary from localityto locality, tax-efficient strategies for portfolio construction and wealth transfer are necessarily specific to the locality in which the investor is taxed, The study session focuses on investment strategies applicable across a wide range of localities Although illustrations of such strategies may be presented from a country-specific perspective, candidates should focus on the underlying investment principles and be able to apply them to

other tax settings:

The final reading examines the dynamic mix of human and financial capital during an investor's lifetime and the challenge of meeting financial goals

throughout this uncertain time frame It specifically addresses mortality and

longevity risks by integrating insurance products into the asset allocation solution

‘Managing Investment Portfolios: A Dynarnic Process, Third Edition, John L Maginn, CFA, Donald L Tuttle, CFA, Jerald E Pinto, CFA, and Dennis W McLeavey, CFA, editors

by Stephen M Horan, CFA and Thomas R Robinson, CFA,

by Stephen M Horan, CFA and Thomas R Robinson, CFA,

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Study Session 4

Reading 17 Low-Basis Stock

Integrated Wealth Management: The New Direction for Portfolio

Managers, Jean L.P Brunel, CFA

Reading 18 Goals-Based Investing: Integrating Traditional

and Behavioral Finance Journal of Wealth Management Reading 19 Lifetime Financial Advice: Hurnan Capital, Asset Allocation,

and Insurance

by Roger G Ibbotson, Moshe A Milevsky, Peng Chen, CFA, and Kevin X Zhu

LEARNING OUTCOMES

Reading 14: Managing Individual Investor Portfolios

The candidate should be able to:

a discuss how source of wealth, measure of wealth, and stage of life affect an individual investors’ risk tolerance;

explain the potential benefits, for both clients and investment advisers, of having

a formal investment policy statement;

identify and explain each of the major constraint categories included in an

individual investor's investment policy statement;

Study Session 4

Reading 15: Taxes and Private Wealth Management in a Global

Context

The candidate should be able to:

a compare and contrast basic global taxation regimes as they relate to the taxation

of dividend income, interest income, realized capital gains, and unrealized capital

i demonstrate how taxes and asset location relate to mean-variance optimization

Reading 16:/Estate Planning in ‘a Global context

The candidate should be able to:

a discuss the purpose of estate planning and explain the basic concepts of

domestic estate planning, including estates, wills, and probate;

c determine a family’s core capital and excess capital, based on mortality

probabilities and Monte Carlo analysis;

f evaluate the after-tax benefits of basic estate planning strategies, including

generation skipping, spousal exemptions, valuation discounts, and charitable gifts;

g explain the basic structure of a trust and discuss the differences between

revocable and irrevocable trusts;

k evaluate a client's tax liability under each of three basic methods (credit,

exemption, and deduction) that a country may use to provide relief from double

taxation;

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Study Session 4

I describe the impact of increasing international transparency and information exchange on international estate planning

Reading 17: Low-Basis Stock

The candidate should be able to:

a explain the psychological considerations, investment risk, and tax issues related

to concentrated holdings of low-basis stock;

b discuss how specific risk changes over the three stages (entrepreneurial,

executive, investor) of an investor's “equity holding life;”

c explain individual investors’ attitudes toward holding their own company stock during the entrepreneurial, executive, and investor stages;

d critique the effectiveness of outright sales, exchange funds, completion

portfolios, and hedging strategies as techniques to reduce concentrated equity risk

Reading 18: Goals-Based Investing: Integrating Traditional

and Behavioral Finance

The candidate should be able to:

a explain the benefits of defining portfolio efficiency in terms of clientgoals rather than traditional.measures-of risk-and return;

Reading 19: Lifetime Financial Advice: Human Capital, Asset

Allocation, and Insurance

The candidate should be able to:

a explain the concept and discuss the characteristics of “human capital” as a

component of an investor's total wealth;

d discuss and illustrate how asset allocation and the appropriate level of life

insurance are influenced by the joint consideration of human capital, financial capital, bequest preferences, risk tolerance, and financial wealth;

e discuss the financial market risk, longevity risk, and savings risk faced by investors

in retirement and explain how these risks can be reduced by appropriate

portfolio diversification, insurance products, and savings discipline;

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roadly defined, institutional investors include defined-benefit pension plans,

defined-contribution plans, foundations, endowments, insurance companies,

banks, and investment intermediaries, Each group faces a unique set of portfolio

management investment objectives and constraints that must be addressed to

effectively manage their investment portfolios

The study, session begins with an introduction.of,the concepts and practices

important to determining the investment policy statement for an institutional

investment management dient The next two readings then éxaminelthe spetific

issue of asset/liability management in the context of defined-benefit pension

plans, The implications for asset allocation and risk management are relevant,

however, for a wide range of institutions that manage assets to fund anticipated

throughout the Level III stuch

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Study Session 5

LEARNING O OMES

Reading 20: Managing Institutional Investor Portfolios

The candidate should be able to:

a contrast a defined-benefit plan to a defined-contribution plan, from the

perspective of the employee and employer and discuss the advantages and

disadvantages of each;

b discuss investment objectives and constraints for defined-benefit plans;

c evaluate pension fund risk tolerance when risk is considered from the perspective

of the 1) plan surplus, 2) sponsor financial status and profitability, 3) sponsor and pension fund common risk exposures, 4) plan features, and 5) workforce

I discuss the factors that determine investment policy for pension funds,

foundations, endowments, life and nonlife insurance companies, and banks;

Reading 21: Linking Pension Liabilities to Assets

The candidate should be able to:

a contrast the assumptions concerning pension liability risk in asset-only and

liability-relative approaches to asset allocation;

b discuss the fundamental and economic exposures of pension liabilities and

identify asset types that mimic these liability exposures;

¢ compare pension portfolios built from a traditional asset-only perspective to

portfolios designed relative to liabilities and discuss why corporations may

choose not to implement fully the liability mimicking portfolio

Reading 22: Allocating Shareholder Capital to Pension Plans

The candidate should be able to:

a compare and contrast funding shortfall and asset/liability mismatch as sources of risk faced by pension plan sponsors;

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Study Session 5

b explain how the weighted average cost of capital for a corporation can be adjusted to incorporate pension risk and discuss the potential consequences of not making this adjustment;

c explain, in an expanded balance sheet framework, the effects of different pension asset allocations on total asset betas, the equity capital needed to maintain equity beta at a desired level, and the debt-to-equity ratio

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fter identifying the client's objectives and constraints and creating an

investment policy statement, the manager's next task in the planning process

is to formulate capital market expectations, These forecasts of risk and return characteristics for various asset classes form the basis for constructing portfolios that maximize expected return for given levels of risk, Thisreading examines the

process of setting capital market expectations.and covers the major tools of

economic analysis

‘Managing Investment Portfolios: A Dynarnic Process, Third Edition, John L Maginn, CFA, Donald L Tuttle, CFA, Jerald Pinto, CFA, and Dennis W McLeavey, CFA, editors

The candidate should be able to:

a discuss the role of, and a framework for, capital market expectations in the

portfolio management process;

discuss, in relation to capital market expectations, the limitations of economic

data, data measurement errors and biases, the limitations of historical estimates,

ax post risk as a biased measure of ex ante risk, biases in analysts’ methods, the

failure to account for conditioning information, the misinterpretation of

correlations, psychological traps, and model uncertainty;

dernonstrate the application of formal tools for setting capital market

expectations, including statistical tools, discounted cash flow rnodels, the risk

premium approach, and financial equilibrium models;

explain the use of survey and panel methods and judgment in setting capital

j identify and interpret the components of economic growth trends and

demonstrate the application of economic growth trend analysis to the

formulation of capital market expectations;

0 evaluate how economic and competitive factors affect investment markets,

sectors, and specific securities;

p identify and interpret the major approaches to forecasting exchange rates;

q recommend and justify changes in the: component weights of a global

investment portfolio based on trends and expected changés in macroeconomic factors

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acroanalysis and Microvaluation of the Stock Market" specifically addresses the link between economic activity and stack market

valuation "Dreaming with BRICs: The Path to 2050” addresses emerging markets,

a dynamic and important subcategory of international investing It examines the

economic conditions under which certain developing countries might become a much stronger force in the world,economy and the implications that would have for investors

Investment Analysis and Portfolio Managernent, Eighth Edition,

by Frank K Reilly, CFA and Keith C Brown, CPA Global Economics Paper No 99, by Dominic Wilson and Roopa Purushothaman

The candidate should be able to:

a contrast leading, lagging, and coinddent economic indicators and explain the relationship between these cydical indicator categories and stock market

aggregate stock market;

compare and contrast alternative approaches with the estimation of earnings per

share;

formulate and explain the “direction of change” and the “specific estimate"

approaches to estimating an earnings multiplier for a stock market series;

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Study Session 7

f evaluate the intrinsic value and estimated rate of return of the stock market by estimating future earnings per share and determining an appropriate earnings multiplier

Reading 25: Dreaming with BRICs: The Path to 2050

The candidate should be able to:

a contrast the economic potential of emerging markets such as Brazil, Russia,

India, and China (BRICs) to that of developed markets, in terms of economic size and growth, demographics and per capita income, growth in global spending, and trends in real exchange rates;

discuss the conditions necessary for sustained economic growth, including the core factors of macroeconomic stability, institutional efficiency, open trade, and worker education;

evaluate the investment rationale for allocating part of a well-diversified portfolio

to emerging markets in countries with above average economic potential

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fter developing capital market expectations, the fourth and final task in the planning process is determining the strategic asset allocation Here the manager combines the investment policy statement and capital market

expectations to determine target asset class weights Maximum and minimum permissible asset class weights are often also specified as a risk-control

mechanism The investor may seek.both single-period.and multi-period

perspectivesiin thereturn and riskicharacteristics of'asset allocations\under consideration A single-period perspective has the advantage of Simplicity A multi-period perspective can address the liquidity and tax considerations that arise from rebalancing portfolios through time Such a perspective can also address

serial correlation (long- and short-term dependencies) in returns, but is more costly

to implement

‘Managing Investment Portfolios: A Dynarnic Process, Third Edition, John L Maginn, CFA, Donald L Tuttle, CFA, Jerald Pinto, CFA, and Dennis W McLeavey, CFA, editors Global Investments, Sixth Edition, by Bruno Solnik and Dennis McLeavey, CRA

The candidate should be able to:

a summarize the function of strategic asset allocation in portfolio managernent and discuss its role in relation to specifying and controlling the investor's

exposures to systematic risk;

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I discuss the strengths and limitations of the following approaches to asset

allocation: mean-variance, resampled efficient frontier, Black—Litterman, Monte Carlo simulation, ALM, and experience based;

© contrast the characteristic issues relating to asset allocation for individual

investors versus institutional investors and critique a proposed asset allocation in light of those issues;

p formulate and justify tactical asset allocation (TAA) adjustments to strategic asset class weights, given a TAA strategy and expectational data

Reading 27: The Case for International Diversification

The candidate should be able to:

a evaluate the implications of international diversification for domestic equity and fixed-income portfolios, based on the traditional assumptions of low correlations across international markets;

e evaluate the potential performance and risk-reduction benefits of adding bonds

to a globally diversified stock portfolio;

f explain why currency risk should not be a significant barrier to international

investment;

g critique the traditional case against international diversification;

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he fixed income market is one of the largest and fastest-growing segments of the global financial marketplace Government and private debt currently constitute close to half of the wealth in international financial markets

The basic features of the investment management process are the same for a fixed-income porttolio as for any other type of portfolio Risk, return, and

investment constraints are considered first.As partef this first step, howewer, an

appropriate benchmark must also be selécted based on the Needs of the investor For investors taking 8 asset-only approach, the beifhmark ïế typicallý 2 bond market index, with success measured by the portfolio’s relative investment retum For investors with a liability-based approach, success is measured in terms of the porticlio’s ability to meet a set of investor-specific liabilities The first reading addresses these primary elements of managing fixed-income portfolios and introduces specific portfolio management strategies The second reading

introduces additional relative-value methodologies

‘Managing Investment Portfolios: A Dynarnic Process, Third Edition, John L Maginn, CFA, Donald L Tuttle, CFA, Jerald E Pinto, CFA, and Dennis W McLeavey, CFA, editors

Fixed Income Readings for the Chartered Financial Analyst®

Program, Second Edition, Frank J Fabozzi, CFA, editor

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