CFA Level 2 Quant Method - New Reading

CFA Refresher Readings



Quantitative Methods: Study Session 3



Study Session Materials

New Readings from the 2008 CFA Program

Complete List of CFA Program Readings



Topic Overview

Quantitative Methods for Valuation

This study session begins with a discussion of linear correlation and then focuses on linear regression, one of the most widely used statistical techniques in financial modeling. In addition to a discussion of building and interpreting multiple regression models, the readings present information about testing the significance of the estimated parameters and verifying the whole regression model. Equally important is understanding the assumptions behind the structure of regression models, making corrections if the observed variables do not exhibit the assumed properties, and avoiding misspecification of the models.



Time-series analysis is used to describe the dynamic behavior of an economic or financial variable, to forecast its future values, and to detect relations between the time series of different variables. Indeed, regression models must be treated within a time-series context if the variables are measured over time. Regression reports for such models should include standard time-series tests to ensure that the results of the regression are interpreted correctly. Using time-series analysis to explain the past and predict the future of a data series can help improve portfolio management decision making. Model assumptions and the consequences of model misspecification must be considered in any application. In addition, such time-series properties as stationarity and mean reversion have important consequences for portfolio planning.



View learning outcome statements (LOS) for readings objectives.




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New Readings from the 2008 CFA Program



“Time-Series Analysis”
Ch. 10, Quantitative Investment Analysis, 2nd edition, Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle, and Mark J.P. Anson (Wiley, 2007)
Member download (PDF) View LOS





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Complete List of CFA Program Readings



“Correlation and Regression”
Ch. 8, pp.405–440, Quantitative Investment Analysis, 2nd edition, Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle, and Mark J.P. Anson (Wiley, 2007)
View LOS
"Multiple Regression and Issues in Regression Analysis”

Ch. 9, Quantitative Investment Analysis, 2nd edition, Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle, and Mark J.P. Anson (Wiley, 2007)
View LOS
“Time-Series Analysis”
Ch. 10, Quantitative Investment Analysis, 2nd edition, Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle, and Mark J.P. Anson (Wiley, 2007)
Member download (PDF)