Level I Quantitative Methods

Access to all Level I quantitative methods articles until the next Level I exam date

Markets are interlinked.  There are strong correlations between prices in equity markets, fixed income markets, commodity markets, real estate markets, and so on.  (It’s too much to say, for example, that stock prices are affected by bond prices – which is how the curriculum states it – which imputes a cause-and-effect relationship when the correlation […]

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Cycles Business tends to move in cycles, from expansion to peak to recession to nadir (!) and back to expansion.  There are cycles of differing lengths that can influence capital markets; some of those cycles (such as the presidential election cycle in the US) have an obvious and rational reason to affect business and capital […]

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Be forewarned: there are many technical indicators, so this article is rather long.  What you what to get from it is an understanding of what each indicator is (i.e., its definition), and what each one signals (i.e., how technicians use it).  There are a few calculations along the way that you should know as well. […]

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Trends The single, most important idea underlying technical analysis is arguably trends: Is this security in an uptrend? Is this security in a downtrend? If this security is in a trend, how long will it last? And, most importantly, How can I make money from trends that I identify? Note, by the way, that when […]

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Technical analysts like charts, and CFA candidates like looking at pictures a lot more than reading boring words, so this should be a popular (and colorful) article.  At least, as popular as an article on technical analysis can be. Charts Line Chart These are very common and very easy to read: it’s simply the closing […]

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This is the boring article about technical analysis: no pictures.  Sorry.  The others have pictures.  They’re, therefore, more exciting. Principles of Technical Analysis The primary principle underlying technical analysis is that prices (for stocks, bonds, commodities, currencies, mutual funds, ETFs, whatever) are determined by supply and demand.  Therefore, changes in supply or demand will lead […]

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Parametric tests are straightforward and are the focus of most of . . . well . . . all of the other hypothesis testing articles I’ve written here. They’re concerned, not surprisingly, with questions about the parameters of a particular population or populations: What’s the mean monthly return on this ETF? What’s the standard deviation […]

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Often it’s impractical (or even impossible) to collect data on every member of a population in which you are interested.  When it is, an alternative approach that may prove adequate is to collect data on a sample from that population: a subset of the population which you hope will have characteristics sufficiently close to those […]

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It’s probably (sorry) not an exaggeration (or, at least, not much of one) to say that the central limit theorem is the single most important theorem in probability theory.  It’s so important that it has its own abbreviation: CLT.  (Clever, eh?) In a nutshell, the CLT says that if you add up a bunch of […]

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Let’s get this discussion going on clear footing from the outset: I’m no fan of technical analysis. I understand that it has shown some promise in the analysis of currency exchange rates, but on the whole I believe that it’s a flawed approach: far too subjective, and whose only true advantage comes from the hope […]

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