Following the 2007–09 financial crisis, mainstream finance theory was criticized for failing to forecast the market crash, which resulted in large losses for investors. Has our finance theory, which many consider an idealization that does not take reality into account, failed investors? Do we need to reconsider the theory and how it is taught (and practiced)? This book explores current critiques of mainstream theory and discusses implications for the curricula of finance programs as well as for practitioners. In so doing, the authors integrate a review of the literature supported by conversations with finance professors, asset managers, and other market players.

Investment Management: A Science to Teach or an Art to Learn?

Fabozzi, Frank J.

Focardi, Sergio M.

Jonas, Caroline

Business & Money

CFA Institute Research Foundation

The distinction between brokers and investment advisers has become increasingly blurred over the past 30 years. In a 2011 study, the US SEC recommended that there be one uniform standard for both broker/dealers and investment advisers. In addition, all investment professionals could benefit from some standards. Through a review of market history, literature, and general principles from fiduciary relationships, some simple concepts emerge that could help investment professionals navigate the conflicts of interest that are inevitable given the often blended roles that they play in the financial markets.

Investment Professionals and Fiduciary Duties

JENNINGS, Marianne M.

Islamic economic thought and finance are rooted in Islamic ethics. Their ideals and means are not, however, exclusive to Islam. The principles of Islamic finance emphasize market-based risk-sharing modes of financing that promote asset and enterprise, deploy finance in service of the real economy, and facilitate redistribution of wealth and opportunity. Modern Islamic financial practices, however, privilege legal form over economic substance, which creates an expectations gap between Islamic finance’s theory and practice. In the wake of the global financial crisis of 2007–2008, the ideas underlying Islamic finance appeal to those more concerned with the broader impact of finance on society.

Islamic Finance: Ethics, Concepts, Practice

Malik, Adeel

Hayat, Usman

Geopolitical issues have a profound effect on investment strategies and results. Investors inevitably must balance risk and reward. Geopolitics can bring both risks and opportunities, large and small, onto the investment landscape. The question is, How much time and effort can be devoted to this particular task? Prediction is nearly impossible but preparedness is attainable and desirable. Fund managers and investors need to ask whether preparedness is best achieved through scenario planning, by including geopolitics as one of many drivers of the investment strategy, or by changing the investment team or the information sources and services that the team uses. As always, markets represent diverse interests and abilities. Some investors will find a way to add geopolitics to their investment scenarios and to profit from it. Others will take comfort in knowing that they were not alone in utterly ignoring geopolitics. This monograph offers some core ideas about how to think about the subject. These ideas may prove useful as geopolitics returns to the investment landscape with increasing force.

Geopolitics for Investors

Pippa Malmgren

Exchange-traded funds (ETFs) have become in their 25-year history one of the fastest growing segments of the investment management business. These funds provide liquid access to virtually every financial market and allow large and small investors to build institutional-caliber portfolios. Yet, their management fees are significantly lower than those typical of mutual funds. High levels of transparency in ETFs for holdings and investment strategy help investors evaluate an ETF’s potential returns and risks. This book covers the evolution of ETFs as products and in their uses in investment strategies. It details how ETFs work, their unique investment and trading features, their regulatory structure, how they are used in tactical and strategic portfolio management in a broad range of asset classes, and how to evaluate them individually.

A Comprehensive Guide to Exchange-Traded Funds (ETFs)

Hill, Joanne M.

Nadig, Dave

Hougan, Matt

Fuhr, Deborah

The true meaning of investment discipline is to trade only when you rationally expect that you will achieve your desired objective. Accordingly, managers must thoroughly understand why they trade. Because trading is a zero-sum game, good investment discipline also requires that managers understand why their counterparties trade. This book surveys the many reasons why people trade and identifies the implications of the zero-sum game for investment discipline. It also identifies the origins of liquidity and thus of transaction costs, as well as when active investment strategies are profitable. The book then explains how managers must measure and control transaction costs to perform well.Electronic trading systems and electronic trading strategies now dominate trading in exchange markets throughout the world. The book identifies why speed is of such great importance to electronic traders, how they obtain it, and the trading strategies they use to exploit it. Finally, the book analyzes many issues associated with electronic trading that currently concern practitioners and regulators.

Trading and Electronic Markets: What Investment Professionals Need to Know

Harris, Larry

The Research Foundation Review 2015 summarizes the offerings from the CFA Institute Research Foundation over the past year—monographs, literature reviews, workshop presentations, and other relevant material.

Research Foundation Review 2015

A Practitioner's Guide to Factor Models

The Research Foundation of the Institute of Chartered Financial Analysts

Supply and demand are cornerstones of economics and the interaction of these forces is believed to explain price changes in all freely traded markets. Scarcity tends to result in increased prices and abundance generally leads to lower prices. In financial markets, technical analysis provides a framework for informing investment management decisions by applying a supply and demand methodology to market prices. Technical analysts employ a disciplined, systematic approach that seeks to minimize the impact of behavioral biases and emotions that could adversely affect investment performance. Analysts employ ratio analysis, comparative analysis and other techniques that are similar to the tools developed to analyze financial statements.

Technical Analysis: Modern Perspectives (CFA Institute Research Foundation Literature Reviews)

Carr, Michael

Scott Gordon

Cremonie, Mark

This monograph draws heavily on the vast body of knowledge that has been built by financial economists over the last 50 years. Its goal is to show how to solve real-life portfolio allocation problems. We have found that using a broad range of models works best. Also, we prefer simple over complex models. We believe that simplicity and modularity lend substantial robustness to investment analysis. Importantly, the framework presented provides several of the “missing links” in asset allocation—for example, the links between asset classes and risk factors, between macroeconomic views and expected returns, and ultimately between quantitative and fundamental investing.

Factor Investing and Asset Allocation: A Business Cycle Perspective

Page, Sébastien

Pedersen, Niels

Naik, Vasant

Devarajan, Mukundan

Nowobilski, Andrew

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