Equity is an important area of Level II curriculum with a major chunk in terms of weight-age. Hardly any CFA Charter holder would be 'inefficient' in this area. The material is not complex but there are small technicalities involved. For instance while deducing equity risk premium historical or future which one would be suitable? In calculating Required Return whether long term yield or short term yield on risk free securities is required for calculations etc. I think the examples of this particular area are very helpful in understanding the technicalities involved. Especially examples expressing Fama French Model in Reading 35 is extremely important in understanding the relationship of Beta with Market, Size and Value segregations.
Another technicality involved in assessing the equity risk premium or the required rate of return is the incorporation of appropriate model. For instance certain models cannot be incorporated in emerging markets whereas others can. GGM cannot be used when dividend growth and earning growth cannot be predicted reliably. Macroeconomic models also require some 'pre-requisite' state of the economy to be implemented efficiently.
Mere cramming of the requirements of these models could be a wise strategy for exams perspective but understanding them with adequate diligence can help in making things appear more sensible. I am done with examples of Reading 35 shortly I will be done with the chapter end questions of CFAI Text to evaluate myself. Reasonable practice can ensure that the technicalities have been retained or not.
Another technicality involved in assessing the equity risk premium or the required rate of return is the incorporation of appropriate model. For instance certain models cannot be incorporated in emerging markets whereas others can. GGM cannot be used when dividend growth and earning growth cannot be predicted reliably. Macroeconomic models also require some 'pre-requisite' state of the economy to be implemented efficiently.
Mere cramming of the requirements of these models could be a wise strategy for exams perspective but understanding them with adequate diligence can help in making things appear more sensible. I am done with examples of Reading 35 shortly I will be done with the chapter end questions of CFAI Text to evaluate myself. Reasonable practice can ensure that the technicalities have been retained or not.
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