From Dr Robert R. Johnson.
Sir, Gillian Tett's article "Credit crunch causes analysts to rethink rational market theory" (June 16), on the results of a CFA UK member survey, suggests that Chartered Financial Analyst Institute charterholders have been educated as adherents to "market efficiency" for some five decades and that they have only recently been introduced to behavioural finance. Quite the contrary - from its inception the CFA Program has presented different viewpoints based on both investment theory and practice. Further, looking for market inefficiencies has been a cornerstone of the programme.
The CFA Program curriculum is developed based on a global practice analysis whereby practising investment professionals provide their views on what knowledge, skills and abilities are necessary to operate in the global financial markets. Rather than being a recent phenomenon for CFA charterholders, behavioural finance readings have appeared in the curriculum for at least 20 years and have gained more prominence over the last two decades.
While the curriculum includes a discussion of market efficiency and models such as the capital asset pricing model, arbitrage pricing theory, the Black-Scholes option pricing model, and so on, it also details the limitations and assumptions of these models and the importance of other perspectives that help practitioners understand market anomalies and market inefficiencies.
It is important for investment professionals to understand different models of investor and market behaviour. CFA charterholders gain a broad perspective of varying schools of investment management thought and practice enabling them to develop their own investment philosophy - whether they be value investors, growth investors or technicians.
Robert R. Johnson,
Senior Managing Director,
CFA Institute,
Charlottesville, VA, US