The Performance of Analysts with a CFA Designation : The Role of Human-Capital and Signaling Theories

This study compares the performance of sell-side equity analysts with and without a CFA designation. Using a large sample of forecasts, our tests indicate that CFA charterholders issue forecasts that are moderately timelier and bolder than those of non-charterholders. We find that charterholders are more accurate only when we control for timeliness. There is some evidence that charterholders are less optimistic. Taken together, our results provide evidence that charterholders perform at modestly higher levels than non-charterholders. For a sub-sample of analysts, we are able to measure charterholders' performance before and after obtaining their CFA charter. We find evidence that charterholders issue timelier and bolder forecasts than non-charterholders do in the period before charterholders actually obtain their charter. We also find evidence that charterholders improve along the dimension of timeliness after they receive their charter. Our results are consistent with both human-capital and signaling theories of education. Last, we show that the market reaction is stronger for charterholders after controlling for timeliness, boldness, accuracy, and optimism. This result provides evidence consistent with credentialism, a variant of signaling theory in which a professionals education level provides a signal about the professionals quality to his or her clients