CFA L1 2023 Portfolio Ethics Fintree JuiceNotes

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JuiceNotes 2023
Portfolio Management|Ethics
Chartered Financial Analyst - Level I

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INDEX
Portfolio Management
48 Portfolio Management: An Overview 6
49 Portfolio Risk And Return: Part I 11
50 Portfolio Risk And Return: Part II 15
51 Basics of Portfolio Planning and Construction 18
52 Behavioral Bias of Individuals 20
53 Risk Management: An Introduction 29
54 Technical analysis 32
55 Fintech 37
Ethical and Professional standards

56 Ethics and Trust in Investment Profession 44
57 Code of Ethics and standards of Professional conduct 45
58 Guidance of Standards I-VII 46
59 Introduction to GIPS 69
60 Required VS Recommended 71
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Portfolio Management: An Overview
6
7
e
● Buy-side firms - Assets management firms (manage money)
● Sell Side firms - broker-dealers and investment banks (provide services)
Full-service asset managers- Are those that offer a variety of investment

styles and asset classes.
Specialist asset managers may focus on a particular investment style or a
particular asset class
A multi-boutique firm is a holding company that includes a number of different
specialist asset managers
8
9
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10
Portfolio Risk And Return: Part I
x x
11
12
Example:
A portfolio has stocks A & R with weights 60% and 40% respectively. Find SD of portfolio
using following information (Variance - covariance matrix)
A B
A 0.125 0.032
B 0.032 0.271
SD of portfolio = 2 2
√(0.6) (0.125) + (0.4) (0.271) + 2(0.6)(0.4)(0.032) = 0.322
13
14
Portfolio Risk And Return: Part II
15
16
Expected
return
Abnormal Return = Actual Return - a - CAPM
17
Basics of Portfolio Planning and Construction
18
19
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The Behavioural Biases of Individuals

LOS a Compare and contrast cognitive errors and emotional biases
Behavioural biases come in two forms
Cognitive Errors Emotional Biases
Faulty cognitive reasoning, Based on feelings or

known as cognitive errors emotions,
known as emotional biases
Can often be corrected or
eliminated through better Emotional Bias on the other
information, education and hand are harder to correct
advice because they stem from
impulse and intuitions
LOS b Discuss commonly recognized behavioural biases and their implications for
e
financial decision making
Cognitive errors are classified into two categories:

Belief Perseverance Bias & Processing Errors
re
Belief perseverance
• Belief perseverance is the tendency to cling to one’s previously held beliefs by committing statistical,
information-processing, or memory errors.
• The belief perseverance biases discussed are conservatism, confirmation, representativeness,

illusion of control, and hindsight.
nT
• Belief perseverance biases result from the mental discomfort that occurs when new information
conflicts with previously held beliefs or cognitions, known as cognitive dissonance
• To resolve this discomfort, people may ignore or modify conflicting information and consider only
information that confirms their existing beliefs or thoughts
Fi
Conservatism Bias
Meaning It is a belief perseverance bias in which people maintain their prior views or forecasts
by inadequately incorporating new, conflicting information
In Bayesian terms, they tend to overweight their prior probability of the event and
underweight the new information, resulting in revised beliefs about probabilities and
outcomes that under react to the new information
20
Consequence Maintain or be slow to update a view or a forecast, even when presented with new
information
Maintain a prior belief rather than deal with the mental stress of updating beliefs given
complex data. This behaviour relates to an underlying difficulty in processing new
information.
Detection of Conservatism bias may be corrected for or reduced by properly analysing and weighting
& Overcoming new information
When new information is presented, the financial market participants (FMP) should ask
questions such as, “How does this information change my forecast?” or “What effect
does this information have on my forecast?”
Confirmation Bias
Meaning Confirmation bias refers to the tendency to look for and notice what confirms prior
beliefs and to ignore or undervalue whatever contradicts them
Consequence Consider only the positive information about an existing investment while ignoring any
negative information about the investment
Develop screening criteria while ignoring information that either refutes the validity of the
e
criteria or supports other criteria.
ignore negative news, and they gather and process only information confirming that the
company is a good investment
re
Hold a disproportionate amount of their investment assets in their employing company's
stock, because they believe in their company and are convinced of its favourable prospects
Detection of
The effect of confirmation bias may be corrected for or reduced by actively seeking out
& Overcoming
information that challenges existing beliefs.
nT
Representativeness Bias
Meaning It refers to the tendency to classify new information based on past experiences and
classifications
New information may resemble or seem representative of familiar elements already

classified, but in reality, it can be very different. Base-rate neglect and sample-size neglect
Fi
are two types of representativeness bias.
In base-rate neglect, a phenomenon's rate of incidence in a larger population

Sample-size neglect, incorrectly assume that small sample sizes are representative of
populations.
Consequence Adopt a view or a forecast based almost exclusively on individual, specific information or a
small sample; and
Update beliefs using simple classifications rather than deal with the mental stress of
updating beliefs given the high cognitive costs of complex data.
21
Detection of What is the probability that X (the investment under consideration) belongs to Group A (the
& Overcoming group it resembles or is considered representative of) versus Group B (the group it is
statistically more likely to belong to)?”
This question, or a similar question, will help FMPs think through whether they are failing to
consider base-rate probabilities or neglecting the law of small numbers and thus
inaccurately assessing a particular situation
In illusion of control bias
Meaning People tend to believe that they can control or influence outcomes when, in fact, they
cannot.
Consequence Inadequately diversify portfolios. Research has found that some investors prefer to invest
in companies that they feel they have control over, such as the companies they work for,
leading them to hold concentrated positions. In fact, most investors have little or no
control over the companies they work for.
Trade more than is prudent
Construct financial models and forecasts that are overly detailed. FMPs may require
detailed models before making an investment decision, believing that forecasts from
these models control uncertainty
Detection of The first and most basic idea that investors need to recognize is that investing is a
& Overcoming probabilistic activity. Even the largest investment management firms have little control
over the outcomes of the investments they make. Companies are subject to
macroeconomic and industry forces, as well as the actions of competitors, customers, and
suppliers
Second, it is advisable to seek contrary viewpoints. As you contemplate a new

investment, take a moment to think about considerations that might weigh against
making the investment. Ask yourself: What are the downside risks? What might go
wrong? When will I sell?
22
Belief perseverance bias
Hindsight Bias
Meaning Hindsight bias refers to believing past events as having been predictable and
reasonable to expect. This behaviour results from the obvious fact that outcomes
that did occur are more readily evident than outcomes that did not. Similarly, people
tend to remember their own predictions of the future as more accurate than they
actually were because they are biased by the knowledge of what actually occurred.
Consequence Overestimate the degree to which they correctly predicted an investment outcome, or
the predictability of an outcome generally.
Unfairly assess money manager or security performance. Based on the ability to look
back at what has taken place in securities markets, performance is compared against
what has happened as opposed to expectations at the time the investment was made.
Detection of
Hindsight bias should be recognizable. FMPs should ask such questions as, “Am I re-
& Overcoming
writing history or being honest with myself about the mistakes I made?”
e
Processing errors
Anchoring and adjustment Bias

re
Meaning Relying on an initial piece of information to make subsequent estimates, judgments,
and decisions.
When required to estimate a value with unknown magnitude, people generally begin
with some initial default number—an “anchor”—which they then adjust up or down.
Regardless of how the initial anchor was chosen, people tend to adjust their anchors
insufficiently and produce end approximations that are, consequently, biased
nT
Consequence Consequences of Anchoring and Adjustment Bias As a result of anchoring and

adjustment bias,FMPs may stick too closely to their original estimates when learning
new information. This mindset is not limited to downside adjustments; the same
phenomenon occurs with upside adjustments as well
Fi
Detection of The primary action FMPs can take is consciously asking questions that may reveal
& Overcoming anAnchoring and adjustment bias. Examples of such questions include, “Am I holding onto
this stock based on rational analysis, or am I trying to attain a price that I am anchored
to, such as the purchase price or a high water mark?” and “Am I making this forecast
based on previously observed quantities or based on future expected conditions
23
Mental Accounting Bias
Meaning Mentally dividing money into “accounts “ that influence decisions
Consequence Neglect opportunities to reduce risk by combining assets with low correlations
Irrationally distinguish between returns derived from income and those derived from
capital appreciation
Irrationally bifurcate wealth or a portfolio into investment principal and investment

returns
Detection of
& Overcoming The primary drawback is that correlations between investments are not considered,
leading to unintentional risk taking. FMPs should go through the exercise of combining all
of their assets onto one spreadsheet (without headings or account labels) to see the
holistic asset allocation
Framing bias
Meaning It is an information-processing bias in which a person answers a question differently

based on the way in which it is asked or framed
e
Narrow frame of reference—that is, losing sight of the big picture in favour of one or
two specific points
re
Consequence Misidentify risk tolerances because of how questions about risk tolerance were framed,
becoming more risk-averse when presented with a gain frame of reference and more
risk-seeking when presented with a loss frame of reference
Focus on short-term price fluctuations, which may result in long-run considerations

nT
being ignored
Detection of Framing bias is detected by asking such questions as, “Is the decision the result of
& Overcoming focusing on a net gain or net loss position?
Fi
24
Availability bias
Meaning It is an information-processing bias in which people estimate the probability of an

outcome or the importance of a phenomenon based on how easily information is recalled.
Retrievability: If an answer or idea comes to mind more quickly than another answer or
idea, the first answer or idea will likely be chosen as correct even if it is not the reality.
Categorization: When solving problems, people gather information from what they
perceive as relevant search sets. Different problems require different search sets, which
are often based on familiar categorizations
Narrow Range of Experience: When making an estimate, a person may use only a narrow
range of experience instead of considering multiple perspectives
Resonance: People are often biased by how closely a situation parallels their own
personal situation
Consequence Limit their investment opportunity set. This limitation may result because they use
familiar classification schemes. Choose an investment, investment adviser, or mutual
fund based on advertising or the quantity of news coverage Fail to diversify. This failure
may occur because they make their choices based on a narrow range of experience
Detection of To overcome availability bias, investors need to develop an appropriate investment policy
& Overcoming
e
strategy, carefully research and analyze investment decisions before making them, and
focus on long-term historical data. Questions such as, “How did you decide which
investments to consider? Did you choose investments based on your familiarity with the
industry or country? Did you see them in an article or research report?”
re
LOS b Discuss commonly recognized behavioural biases and their implications
for financial decision making
Loss aversion bias

nT
Meaning Loss-aversion bias refers to the tendency to strongly prefer avoiding losses to
achieving gains. Paradoxically, in real life, people instead tend to accept more risk to
avoid losses than to achieve gains.
Loss aversion leads people to hold their losers to avoid recognizing losses and sell
their winners to lock in profits
Fi
Consequence Hold investments in a loss position longer than justified by fundamental analysis, in the
hope that they will return to breakeven.
Sell investments in a gain position earlier than justified by fundamental analysis, out of
fear that the gains will erode.
Detection of A disciplined approach to investment is a good way to alleviate the impact of the loss-
& Overcoming aversion bias
25
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Overconfidence bias
Meaning Overconfidence bias is a bias in which people demonstrate unwarranted faith in their
own abilities. Overconfidence may be intensified when combined with self-
attribution bias, in which people take too much credit for successes (self-enhancing)
and assign responsibility to others for failures (self-protecting).
Consequence As a result of overconfidence bias, they may do the following:

Underestimate risks and overestimate expected returns.
Hold poorly diversified portfolios, which may result in significant downside risk.
Detection of They must review their trading records, identify both the winners and losers, and calculate
& Overcoming portfolio performance over at least two years. Investors with an unfounded belief in their
own ability to identify good investments may recall winners and their results but
underestimate the number and results of their losers. This review will also identify the
amount of trading
Self control bias
Meaning
e
It is a Bias in which people fail to act in pursuit of their long-term, overarching goals in
favor of short-term satisfaction. For example, individuals pursuing the CFA charter may
fail to study sufficiently because of short-term competing demands on their time.
re
Consequence Save insufficiently for the future, which may, in turn, result in accepting too much risk
in portfolios in an attempt to generate higher returns.
Borrow excessively to finance present consumption.

nT
Detection of They should ensure that a proper investment plan is in place and should have a personal
and Overcoming budget
Fi
26
Status Quo bias
Meaning It is an emotional bias in which people choose to do nothing, instead of making a

change, even when change is warranted
Overconfidence bias has two forms: prediction overconfidence and certainty

overconfidence
Consequence Unknowingly maintain portfolios with risk characteristics that are inappropriate for
their circumstances.
Fail to explore other opportunities
Detection of Overcoming Status Quo Bias Status quo bias may be exceptionally strong and difficult to
and Overcoming overcome. Education is essential. FMPs should quantify the risk-reducing and return-
enhancing advantages of diversification and proper asset allocation.
Endowment bias
Meaning It is an emotional bias in which people value an asset more when they own it than when
Consequence
ethey do not.
Fail to sell certain assets and replace them with other assets.
re
Continue to hold classes of assets with which they are familiar. People may believe they
understand the characteristics of the investments they already own and may be reluctant
to purchase assets with which they have less experience.
As a result, the people may maintain an inappropriate asset allocation

nT
Detection of
Many wealth management practitioners have encountered clients who are reluctant to sell
and Overcoming
securities bequeathed by previous generations.
Often in these situations, investors cite feelings of disloyalty associated with the prospect
of selling inherited securities, general uncertainty in determining the right choice, and
concerns about tax issues. An FMP should ask, “If an equivalent sum to the value of the
investments inherited had been received in cash, how would you invest the cash?” Often,
the answer is into a very different investment portfolio than the one inherited
Fi
27
Consequences of Regret-Aversion Bias
Meaning It is an emotional bias in which people tend to avoid making decisions out of fear
that the decision will turn out poorly. Regret-aversion bias has two dimensions:
actions that people take and actions that people could have taken.
Overconfidence bias has two forms: prediction overconfidence and certainty
overconfidence
Consequence Be too conservative in their investment choices as a result of poor outcomes on risky
investments in the past
Engage in herding behaviour
Detection of FMPs should quantify the risk-reducing and return-enhancing advantages of

and Overcoming diversification and proper asset allocation. Regret aversion can cause some people to
invest too conservatively or too riskily depending on the current trends. With proper
diversification, people will accept the appropriate level of risk in their portfolios
depending, of course, on return objectives. To prevent investments from being too
conservative, people must recognize that losses happen to everyone and keep in mind the
long-term benefits of including risky assets in portfolios.
LOS c Describe how behavioural biases of investors can lead to market characteristics
e
that may not be explained by traditional finance
Momentum or trending effects in which future price behaviour correlates with that of the recent past. The
re
positive correlation typically lasts for up to two years before showing a reversal or reversion to the mean.
In bubbles, investors often exhibit symptoms of overconfidence; over-trading, underestimation of risks, failure
to diversify, and rejection of contradictory information. With overconfidence, investors are more active and
trading volume increases, thus lowering their expected profits.
nT
As a bubble unwinds, markets may under-react because of anchoring when investors do not sufficiently update
their beliefs. The early stages of unwinding a bubble can involve investors in cognitive dissonance, who ignore
losses and attempt to rationalize flawed decisions. Eventually, investors capitulate, which accelerates price
declines.
Detection of
and Overcoming
Fi
Forum Link
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28
Risk Management: An Introduction
29
30
31
32
33
34
35
36
Fintech
LOS a Describe Fintech
Fintech : Ÿ It refers to technological innovations in the design and delivery of financial

services and products
Ÿ Advanced computer system are performing tasks at the levels far surpassing
human capabilities
Areas of fintech developement
Analyzing large Automated Financial record

data set trading keeping
Analytical tools Automated advice

(AI) (Robo advices)
LOS b Big data, artificial intelligence, and machine learning
e
Big data : Vast amount of data generated from traditional and non traditional (alternative
data) sources , which may be structured, semi structured or unstructured.
re
E.g. SQL E.g. HTML E.g. Videos
Characteristics of Sources of big

big data data
nT
Ÿ Volume - Amount of data Ÿ Financial markets

collected in files
Traditional
Ÿ Businesses
data structure
Ÿ Velocity - Speed with which
data is communicated Ÿ Governments
Ÿ Variety - Sources from which Ÿ Social media

data is collected Non-traditional
Fi
Ÿ Sensor networks data structure
Ÿ Company exhaust
Challenges in ŒData must be sourced, learned, and organized before analysis

big data :
Data must be well suited for the type of analysis
ŽSufficient volume of data must be collected
There should not be selection bias and data outliers

37
Artificial intelligence: Ÿ AI technology has enabled the computer systems to make
decisions that are comparable or superior to that of human beings
Ÿ Financial institutions used AI particularly in neural networks
Ÿ Neural networks - programs based on how are brain learns and
processes information e.g. act as detection system in credit card fraud
Machine learning: Ÿ ML algorithms are computer programs that are able to learn how to
complete tasks improving their performance over time with experience
Training datasets
Machine learning
Input given Output given
Algorithm learns
the relationship Validation datasets
Algorithm use is validated
eInput Output
re
Disadvantages of Ÿ Overfitting -
machine learning: Ÿ ML models treat noise in the date as true parameters
Ÿ They are too precise (overtrained model)
Ÿ Underfitting -
nT
Ÿ ML models treat true parameters as if they are noise

Ÿ Too simplistic model
Ÿ Algorithms arrive at outcome that may not be entirely understood
or explainable (black box approaches)
Types of machine learning
Supervised Unsupervised Deep

Fi
learning learning learning
Identify best signal to Computers are not Uses supervised and

forecast future returns given labeled data unsupervised
therefore algorithms machine learning
Computers learn to have to describe approaches
model relationships data and their
based on labelled structures
training data
38
Data science: Defined as an interdisciplinary field that harnesses advances

in computer science (including machine learning), statistics,
and other disciplines for the purpose of extracting information
from Big Data Data Processing methods include capture,
curation, storage, search, and transfer
Data Visualization : Data Visualization refers to how the data will be formatted,
displayed, and summarized in graphical form
Data visualization technique :
Ÿ Tag cloud : Where words are sized and displayed on the
basis of the frequency of the word in the data file
Ÿ Mind map : A mind map shows how different concepts are
related to each other rather than displaying the frequency of
words
LOS c Fintech applications to investment management
1 Text analytics and natural language processing:
Ÿ Text analytics: Computer program analyze and derive information from unrelated
resources to aid decision making process
e
Ÿ Natural language processing (NLP): Computer program analyze and interpret human
language eg. Monitoring analysts commentary

re
2 Algorithmic trading:
Ÿ Computerized buying and selling of financial instruments as per pre-defined rules and
guidelines. It automatically places trades when certain conditions are met
Ÿ Investors are benefitted with speed of execution, anonymity, and lower transaction cost
3 Robo - advisory services:

nT
Ÿ They provide investment solutions through online platform by reducing the need for
direct interaction with financial advisors

Ÿ They follow passive investment approach
Ÿ Dominant use of robo advisory in wealth management
I) Fully automated digital wealth managers

II) Adviser assisted digital wealth managers
Fi
4 Risk analysis :
Ÿ ML techniques validate data quality before integration with traditional data for use in
risk models and risk management applications
39
LOS d Financial applications of distributed ledges technology
Distributed ledges : A digital ledger that may be shared among entities in a network.
Entries are recorded, stored and distributed across a network of
participants so that each participant has a matching copy of the
digital database.
Features of DLT include the use of :
1) Cryptography
Ÿ Encrypting the data by making it unusable for unauthorized parties
2) Smart contracts
Ÿ Computer programs self execute the contract based on pre specified terms
and conditions that are agreed by parties of contract
3) Blockchain
Ÿ Changes in ownership, is recorded sequentially within blocks that are then linked
or chained together and secured using cryptographic method
Ÿ Each block contains a grouping of transactions (or entries) and a secure link
(known as hash) to the previous block.
e
4) Permissionless network:
Ÿ All users within the network can see all transactions that exist on the blockchain
Ÿ It does not depend on a centralized authority to confirm or deny the validity of
transactions
re
Ÿ In a permissionless network, trust is not a requirement between transaction
parties
5) Permissioned network:
Ÿ Network members may be restricted from participating in certain

network activities
Ÿ Controls or permissions are requires from adding transactions to
nT
viewing transactions
Fi
40
Applications of DLT to investment management
Ÿ Crypto currencies : It is used to record and verify all the digital currency transactions
Ÿ Initial coin offering (ICO) : is an unregulated process whereby companies sell their
crypto tokens to investors in exchange for fiat money
Ÿ Tokenization : DLT has the potential to streamline the process of representing

ownership rights to physical assets by creating single digital record of ownership
Ÿ Post-Trade Clearing and Settlement : DLT has the potential to streamline post-trade
process by providing near real time trade verification, reconciliation and settlement
Ÿ Compliance : DLT allow regulators and firms to maintain near real time review over
transactions and other compliance related processes

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1
Ethics and Trust In The

Investment Profession
Ÿ Ethics can be defined as a set of moral principles or rules of conduct that provide
guidance for our behavior when it affects others. Ethical principles include
honesty, fairness, diligence, and care and respect for others.
Ÿ Unethical behavior by individuals have serious personal consequences—ranging

from job loss and reputational damage to fines and even jail—but unethical
conduct from market participants, investment professionals, and those who
service investors can damage investor trust and thereby impair the sustainability
of the global capital markets as a whole
Ethics, Society, and the Capital Markets

Ÿ Efficient capital market system is dependent on trust of the participants.
Ÿ If investors believe that the capital markets are unfair such that only insiders can
be successful, they will be unlikely to invest & will require a higher risk premium.
Ÿ Decreased investment capital can reduce innovation and job creation and hurt the
economy and society as a whole
Capital Market Sustainability and the Actions of

One
e The Relationship between Ethics and

Regulations
re
Ÿ In an interconnected global economy and Ÿ Ethical behaviour is often distinguished from
marketplace, each participant should be legal conduct by describing legal behaviour
aware of how his or her actions may have an as what is required and ethical behaviour as
impact on capital market participants in conduct that is morally correct.
other regions or countries. Ÿ Therefore, reliance on compliance with laws
Ÿ Corporate compensation strategies should and regulation alone is insufficient to ensure
not encourage otherwise ethically sound ethical behaviour of investment
nT
individuals to engage in unethical or professionals or to create a truly ethical

questionable conduct for financial gain culture in the industry
Applying an Ethical ªEstablishing an ethical framework for an internal thought process

Framework - prior to deciding to act is a crucial step in engaging in ethical conduct.
ªUtilizing a framework for ethical decision making will help investment
professionals effectively examine their conduct in the context of
Fi
conflicting interests
Commitment to ªDevelopment, maintenance, and demonstration of a strong culture of

Ethics by Firms - integrity within the firm by senior management may be the single
most important factor in promoting ethical behaviour among the
firm's employees
Ethical Commitment ªCFA Institute's goal is to ensure that the organization and its
of CFA Institute - members and candidates develop, promote, and follow the highest
ethical standards in the investment industry
ª There are set of principles that define the overarching conduct CFA
Institute expects from its members and CFA Program candidates
44
Code of Ethics
Members and Candidates of CFA Institute must:
Act with integrity, competence, diligence, respect and in an ethical manner
with the public, clients, prospective clients, employers, employees, colleagues
in the investment profession and other participants in the global capital
markets.
Place the integrity of the investment profession and the interests of the clients
above their own personal interests.
Use reasonable care and exercise independent professional judgement when

conducting investment actions and engaging in other professional activities.
Practice and encourage others to practice in a professional and ethical manner

that will reflect credit on themselves and the profession.
Promote the integrity and viability of the global capital markets for the
ultimate benefit of the society.
ee
Maintain and improve their professional competence and strive to maintain
and improve the competence of other investment professionals.
All queries/doubts about this reading can be posted on

FinTree Forum for the reading
Watch video with important
testable concepts here
Tr
n
Fi
45
Standard I: Professionalism
46
47
48
49

All queries/doubts about this reading can be posted on testable concepts here
Video Link
Forum Link
50
Standard II: Integrity Of Capital Markets
Guidance
è Material information - Disclosure would impact the price of security
è If reasonable investor would want the information before making an investment decision
è Nonpublic information - It is not available to the marketplace
è Analyst’s conference call is not public disclosure
è Selective disclosure causes insider trading
è Prohibition against acting on material nonpublic information extends to securities, swaps, option
contracts and matual funds
51
52
Standard III: Duties To Clients
53
54
55

56
Standard IV: Duties To Employers
57
58
Ÿ Members and Candidates must make reasonable efforts to ensure that anyone subject
to their supervision or authority complies with applicable laws, rules, regulations, and
the Code and Standards
59
60
Standard V: Investment Analysis,

Recommendation & Actions
61
Ÿ Disclose to clients and prospective clients significant limitations and risks associated
with the investment process
62
63
Standard VI: Conflict Of Interest
64
65

Video Link
Forum Link
66
Standard VII: Responsibilities as CFAI

Member or CFA Candidate
Ÿ Members and Candidates must not engage in any conduct that compromises the
reputation or integrity of CFA Institute or the CFA designation or the integrity,
validity, or security of CFA Institute programs
67

Video Link
Forum Link
68
Introduction To The Global Investment

Performance Standards (GIPS)
69

Video Link
Forum Link
70
Required Vs Recommended Standard I to VII

Required :
● Understand & comply with all applicable laws, rules & regulations pertaining to any govt, regulatory
organization, licensing agency or professional association governing their professional activities
● Comply with more strict law, rule or regulation in case of conflict
● Must not knowingly participate or assist & must dissociate from any violation of laws, rules or regulations
Recommended :
● Know laws & regulations related to their professional activity in all countries where they work/ conduct
business
● Never violate code & standards even if activity is otherwise legal
● Dissociate or separate from any ongoing client or employee activity if it’s illegal or unethical - in extreme case
they may have to leave the employer
● Confront the individual involved. Approach the supervisor or compliance department
● Inaction with continued association may be construed as knowing participation
● Have procedures to keep up with changes in laws
● Compliance procedures- review on ongoing basis
● Maintain current reference material for employees
● In doubt seek advice of counsel or compliance department
● Document any violation when disassociating
● Report other members’ violations also
● No requirement to report violations to governmental authorities except when required by law
● Encourage their firms to develop and/or adopt a code of ethics, provide information to employees which
highlights applicable laws and regulations, establish written procedures for reporting suspected violation of
laws, regulations or company policies
● In charge of supervision/ investment services- comply with regulations and laws in their country of origin and
where products/services will be sold
I B : Independence & Objectivity
Required :
● Use reasonable care & judgement to achieve & maintain independence & objectivity in professional
activities
● Not to offer, solicit or accept any gift, benefit, compensation or any type of consideration that compromises
their own or another’s independence & objectivity
Recommended :
● Investment process must not be influenced by any external sources
● Modest gifts are permitted

71
● Allocation of shares in oversubscribed IPO to personal accounts not permitted
● Distinguish gifts from clients & entities seeking influence to the detriment of the client
● Gifts must be disclosed to the member’s employer in any case either prior to acceptance or subsequently
● Don’t get pressurized from sell-side analyst to issue favourable research on current or prospective
investment-banking client in “road shows”
● Effective “firewalls” between research/ investment management & investment banking activities
● Analyst should not be pressured to issue favourable research by the companies they follow
● Do not limit research to discussions with company management. Use sources like suppliers, customers,
competitors
● Portfolio managers should not pressure sell side analysts may have large positions in particular securities
rating downgrade may adversely affect portfolio performance. Their responsibility to respect and foster
intellectual honesty of sell side research
● Members responsible for selecting outside managers should not accept gifts, entertainment or travel that
might be perceived as impairing independence and/or objectivity
● Members employed by credit rating agencies should make sure they prevent undue influence by security
issuing firms, be aware of potential conflict of interest & consider whether independent analysis is
warranted
● Create a restricted list
● Analyst’s compensation for such research should be limited preference is a flat fee without regard to
conclusions or the report’s recommendation
● Best practice analysts pay their own commercial travel while attending informative events or tours
sponsored by the firm being analyzed
● Protect the integrity of opinions & design proper compensation systems
● Restrict special cost arrangements. Pay for commercial transportation & hotel charges
● Limit the acceptance of gratuities and/or gifts to token items
● Develop formal policies related to employee purchases of equity, IPOs & private placements
● Effective supervisory & review procedures
● Formal written policies on independence and objectivity
● Appoint a compliance officer, have clear procedures for employee for reporting the unethical behaviour and
violation of regulations
I C : Misrepresentation
Required :
● Must not knowingly make any misrepresentations relating to investment analysis, recommendation, actions
or other professional activities compromises their own or another’s independence & objectivity
Recommended :
● Do not give false impressions in writing, oral or electronic communication
● Misrepresentation includes guaranteeing investment performance and plagiarism
● Plagiarism using someone else’s work without giving him credit

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● To avoid plagiarism firm should keep record of all sources and cite them
● Deliberately omitting information that could affect investment decision
● Models and analysis developed by others at firm property of firm can be used with attribution
● A report written by another analyst employed by the firm cannot be released as another analyst’s work
● Provide employees a written list of firm’s available services and description of the firm’s qualifications
● Employees’ qualification should be accurately presented
● Information from recognized financial and statistical reporting services need not be cited (Eg Fred, S&P)
● Establish procedures for verifying marketing claims of third parties whose information the firm provides to
clients
I D : Misconduct
Required :
● Must not involve in any professional misconduct, dishonesty, fraud, deceit or commit any act that reflects
adversely on their professional reputations, integrity or competence
Recommended :
● Unethical behaviour in all aspects of M&C’s lives is discouraged
● Do not abuse CFA Institute’s Professional Conduct Program by seeking enforcement of this Standard to
settle personal, political, or other disputes that are not related to professional ethics
● Develop and adopt a code of ethics and make clear that unethical behaviour will not be tolerated
● Give employees a list of potential violations and sanctions including dismissal
● Check references of potential employees (Background check)
II A : Material Non-Public Information
Required :
● Members and Candidates who possess material nonpublic information that could affect the value of an
investment must not act or cause others to act on the information
Recommended :
● Material information if disclosure would impact price of security or if reasonable investor would want the
information before making an investment decision
● Nonpublic information not available to the marketplace
● Analysts’ conference call is not public disclosure
● Selective disclosure causes insider trading
● Prohibition against acting on material nonpublic information extends to securities, swaps, option contracts
and mutual funds
● Material nonpublic information received while being involved in transactions like investment banking, can
be used for its intended purpose, but must not use the information for any other purpose unless it becomes
public information
73
● Mosaic Theory No prohibition on reaching an investment decision through public and non-material
nonpublic information
● Information from internet or social media sources not all of it is considered public information confirm if it is
also available from public sources, such as company press releases or regulatory filings.
● Seeking insight from individuals who have specialized expertise in an industry not act or cause others to act
on any material nonpublic information obtained from these experts until that information has been publicly
● Make reasonable efforts to achieve public dissemination of information
● Encourage firms to adopt procedures to prevent misuse of material nonpublic information
● Use a “firewall” within the firm
● Substantial control of relevant interdepartmental communication through a clearance area like compliance/
legal department
● Review employee trades maintain watch, rumor, and restricted lists
● Monitor & prohibit proprietary trading if a firm possesses material non-public information
● Prohibiting all proprietary trading may send a signal to the market firm should take the contra side of
unsolicited customer trades
II B : Market Manipulations
Required :
● Members and Candidates must not engage in practices that distort prices or artificially inflate trading
volume with the intent to mislead market participants
Recommended :
● Spreading false rumors is prohibited
● Standard applies to transactions that :
- deceive the market by distorting the price setting mechanism of financial instruments or
- by securing a controlling position to manipulate the price of a related derivative and/or the asset itself
III A : Loyalty, Prudence, and Care
Required :
● Duty of loyalty to clients & must act with reasonable care & exercise prudent judgment.
● Must act for the benefits of clients & place their client’s interests before their employer’s & their own
interests
Recommended :
● Client interest comes first (but no imposition of fiduciary duty)
● Exercise same level of prudence, judgment & care as in management & disposition of their own interests in
similar circumstances
● Manage pool of assets in accordance with the terms of governing documents (e.g. trust documents)
● Determine the identity of “client’” to whom duty of loyalty is owed (may be individual or beneficiaries in
74
case of pension plan or trust)
● Follow any guidelines set by their clients for the management of their assets
● Investment decisions are judged in context of total portfolio rather individual investments
● Conflict arises when client brokerage, “soft dollars” or “soft commissions” are not used for benefits of clients
● Cost-benefit analysis may show that voting all proxies may not be a beneficial strategy for clients
● Submit to each client, at least quarterly, a statement showing funds & securities
● Follow applicable rules and laws
● Establish investment objectives of client
● Consider suitability of portfolio relative to client’s needs and circumstances, the investment’s basic
characteristics, or the basic characteristics of the total portfolio
● Diversify
● Deal fairly with all clients in regards to investment actions
● Disclose conflicts
● Disclose compensation arrangements
● Vote proxies in the best interest of clients and ultimate beneficiaries
● Maintain confidentiality
● Seek best execution
● Place client interests first
III B : Fair Dealing
Required :
● Deal fairly and objectively with all clients when providing investment analysis, making investment
recommendations, taking investment action, or engaging in other professional activities
Recommended :
● No discrimination among clients while disseminating recommendations or taking investment action (growth
funds over other funds, discretionary over non discretionary accounts)
● Fairly does not mean equally difference in timings of emails & fax received by clients are normal course of
business
● Different services levels are okay as far as these do not adversely affect any client
● Disclose different levels of services to all clients and prospects
● Premium services should be available to all those who are willing to pay for them
● All clients must be given fair opportunity to act upon every recommendation
● Clients unaware of change in recommendation should be advised before the order is accepted
● Clients must be treated fairly in the light of their investment objectives and circumstances
● Both institutional and individual clients must be treated in a fair & impartial manner
● M&C should not take advantage of their position to disadvantage clients (e.g. in IPOs)
75
● Firms are encouraged to establish compliance procedures to treat customers & clients fairly
● Communicate recommendations simultaneously within the firm & to customers
● Limit the no. of people who are aware that a recommendation is going to be disseminated
● Shorten the time frame b/w decision & dissemination
● Publish guidelines for pre-dissemination behaviour
● Simultaneous dissemination treat all clients fairly
● Maintain a list of clients & their holdings
● Develop & document trade allocation procedures
● Disclose trade allocation procedures fair & equitable
● Establish systematic account review no preferential treatment to any client or customer
● Disclose level of services different levels of services are possible for same or different fees
III C : Suitability
Required :
● In an advisory relationship with a client-
● Make a reasonable inquiry into a client’s or prospective clients’ investment experience, risk and return
objectives, and financial constraints prior to making any investment recommendation or taking investment
action and must reassess and update this information regularly
● Determine that an investment is suitable to the client’s financial situation and consistent with the client’s
written objectives, mandates, and constraints before making an investment recommendation or taking
investment action
● Judge the suitability of investments in the context of the client’s total portfolio
● Managing a portfolio to a specific mandate, strategy, or style, they must make only investment
recommendations or take only investment actions that are consistent with the stated objectives and
constraints of the portfolio
Recommended :
● Develop IPS at beginning of the relationship
● Consider client’s needs, circumstances & risk tolerance
● Consider whether the use of leverage is suitable for the client or not
● Make sure to abide by the stated mandate
● Develop written IPS of each client considering client identification, investor objectives, investor constraints,
performance measurement benchmark (Update IPS at least annually)
● Objectives & constraints should be maintained & reviewed periodically to reflect any changes in clients’
circumstances
● Suitability test policies
● Unsolicited Trade Requests request to purchase a security that is unsuitable which may or may not have a
material effect on the risk characteristics of the client’s total portfolio discussed with the client that it’s
unsuitable
76
● If it has minimal impact after discussing with the client about unsuitability follow his firm’s policy with
regard to unsuitable trades
● Material impact on the risk/return profile
● Update the IPS
● Trade to be made in a separate client-directed account
● In the absence of other options discontinue relationship
III D : Performance Presentation
Required :
● When communicating investment performance information > make reasonable efforts to ensure that it is
fair, accurate, and complete
Recommended :
● Avoid misstating performance or misleading clients about investment performance of themselves or their
firms
● Not misrepresent past performance or reasonably expected performance
● Not state or imply the ability to achieve a rate of return similar to that achieved in the past
● Provide reference to limited information provided on brief presentations
● For brief presentations make detailed information available on request
● Apply Global Investment Performance Standards (GIPS)
● Consider the knowledge of audience to whom performance presentation is addressed
● Performance of weighted composite of similar portfolios rather a single account
● Include performance history of terminated accounts
● Disclosures that fully explain the performance results being reported
● Maintain data & records used to calculate the performance being presented
III E : Preservation of Confidentiality
Required :
● Keep information about current, former, and prospective clients confidential unless:
● The information concerns illegal activities on the part of the client or prospective client
● Disclosure is required by law
● The client or prospective client permits disclosure of the information.
Recommended :
● If a client is involved in illegal activities members may have an obligation to report to the authorities
● Extends to former clients as well
● Not prevent members from cooperating with a CFA PCP investigation

77
● Avoid disclosing information received from client except to authorized coworkers working for the client
● Follow firm’s procedures for storing electronic data
● Recommend development of such procedures if they are not in place
IV A : Loyalty
Required :
● In matters related to their employment act for the benefit of their employer and not deprive their employer
of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to
their employer
Recommended :
● Applicable to employees. Independent contractors abide by agreement
● Place client interests above interests of their employer but consider the effects of their actions on firm
integrity and sustainability
● No requirement that the employee put employer interests ahead of family and other personal obligations
balance these obligations with work obligations
● Not have incentive and compensation systems that encourage unethical behaviour
● Independent practice for compensation prior consent of employer describe all aspects of the services,
including compensation, duration and the nature of the activities
● Leaving an Employer continue to act in their employer’s best interests until resignation is effective Activities
which may constitute a violation include:
- Misappropriation of trade secrets
- Misuse of confidential information
- Soliciting employer’s clients prior to leaving
- Self-dealing
- Misappropriation of client lists
● Employer records on any medium (e.g. home computer, PDA, cell phone) are the property of the firm
● Simple knowledge of names and existence of former clients is generally not confidential
● Give employer a copy of the Code and Standard
● No prohibition on the use of experience or knowledge gained while with a former employer
● If an agreement exists among employers permitting brokers to take certain client information when leaving
a firm act within the terms of the agreement without violating the Standard
● Adhere to their employers’ policies concerning social media when planning to leave an employer - notifying
clients about employee separations
● Best practice separate social media accounts for personal and professional communication
● Whistleblowing duty to employer violated to protect clients or the integrity of the market and not for
personal gain
78
IV B : Additional Compensation Arrangements
Required :
● Not accept gifts, benefits, compensation, or consideration that competes with or might reasonably be
expected to create a conflict of interest with their employer’s interest unless they obtain written consent
from all parties involved
Recommended :
● Compensation includes both direct & indirect form
● Additional benefits are also included
● Written consent from employer includes email communication
● Hired to work part time discuss any arrangements that may compete with their employer’s interest and
abide by any limitations their employer identifies
● Immediately report to employer in written format detailing any proposed compensation and services
● Performance incentives should be verified by the offering party
● Bonus depending on ’future’ performance – addn comp.
● Reward for ‘past’ performance – gift
IV C : Responsibility of Supervisors
Required :
● Make reasonable efforts to ensure that anyone subject to their supervision or authority complies with
applicable laws, rules, regulations, and the Code and Standards
Recommended :
● Make reasonable efforts to prevent as well as detect violations of laws, rules, regulations or code &
standards by employees
● Adequate compliance system must meet industry standards, regulatory requirements, and the requirements
of the Code and Standards
● Inadequate compliance system bring to attention of firm’s management and recommend corrective action
● If violation respond promptly conduct investigation limit the suspected employee’s activities
● No compliance procedures or inadequate procedures decline supervisory responsibility in writing until

adequate procedures are adopted by the firm
● Adopt a code of ethics. Don’t commingle compliance procedures with the firm’s code of ethics
● Adequate compliance procedures should:
● Be clearly written
● Be easy to understand
● Designate a compliance officer with authority clearly defined
● Have a system of checks and balances
● Outline the scope of procedures
79
● Outline what conduct is permitted
● Contain procedures for reporting violations and sanctions
● Structure incentives so that unethical behaviour is not rewarded
● Once the compliance program is instituted, the supervisor should:
- Distribute it to the proper personnel
- Update it as needed
- Continually educate staff regarding procedures
- Issue reminders as necessary
- Require professional conduct evaluations
- Review employee actions to monitor compliance and identify violations
- Enforce procedures once a violation occurs
- Review procedures and identify any changes needed to prevent violations in the future
V A : Diligence and Reasonable Basis
Required :
● Exercise diligence, independence, and thoroughness in analyzing investments, making investment
recommendations, and taking investment actions
● Have a reasonable and adequate basis, supported by appropriate research and investigation, for any
investment analysis, recommendation or action
Recommended :
● Level of research for due diligence depends on product/service offered
● Prior to making recommendation or investment action consider:
- Global and national economic conditions
- Firm’s financial and operating history & business cycle stage
- Mutual fund’s fee & management history
- Limitation of any quantitative methods used
- Appropriateness of peer group comparisons
● Quantitative Research consider positive & negative results, scenarios which are not typically used to assess
downside risk explain the importance of research and how results were used in decision making process
● Secondary or Third-Party Research review it’s quality consider following :
- Review assumptions
- How rigorous is the analysis
- How timely the research is
- Evaluate objectivity & independence of recommendations
80
● Review External Advisers :
- Have adequate compliance and internal controls
- Review the quality of the published return information
- Do not deviate from stated strategies
● Don’t agree with the independent and objective view of the group need not decline to be identified with the
report, as long as there is a reasonable and adequate basis
● Policy requiring that research reports, credit ratings & investment recommendations have a reasonable &
adequate basis
● Develop written guidance for analysts, supervisory analysts & review committees
● Develop measurable criteria for research report quality assessment
● Written guidance for computer-based models used in developing, rating & evaluating financial instruments
● Develop measurable criteria for assessing outside providers
● Standardized set of criteria for evaluating the adequacy of external advisers
V B : Communication with Clients and Prospective Clients
Required :
● Disclose to clients and prospective clients the basic format and general principles of the investment
processes they use to analyze investments, select securities, and construct portfolios and must promptly
disclose any changes that might materially affect those processes
● Disclose to clients and prospective clients significant limitations and risks associated with the investment
process
● Use reasonable judgment in identifying which factors are important to their investment analyses,
recommendations, or actions and include those factors in communications with clients and prospective
clients
● Distinguish between fact and opinion in the presentation of investment analysis and recommendations
Recommended :
● Always include basic characteristics of security identified
● Illustrate investment decision making process used
● The standard does not confine communication to a research report
● Communicate any specific risk factors associated with securities
● Clearly communicate potential gains & losses in terms of total return
● Communicate significant changes in the risk characteristics of an investment/ strategy
● Update clients regularly about changes in the investment process, risks and limitations newly identified
● Projections from quantitative models and analysis explain the limitations of the model and the assumptions
it uses this judging the uncertainty regarding the estimated investment result
● Inform clients about limitations inherent to an investment liquidity & capacity
● Ability to supply additional information if requested hence maintain relevant information
81
V C : Record Retention
Required :
● Develop and maintain appropriate records to support their investment analysis, recommendations, actions,
and other investment-related communications with clients and prospective clients
Recommended :
● Maintain records that support conclusion or any investment action
● Such records are property of the firm
● If regulatory requirements do not recommend, maintain records for at least 7 years
● All communications with clients through any medium, including emails and text messages, are records that
must be retained
● Members who change firms must recreate analysis documentation > not rely on memory or material created
in previous firms
● Record-keeping is generally firm’s responsibility
VI A : Disclosure of Conflict
Required :
● Make full and fair disclosure of all matters that could reasonably be expected to impair their independence
and objectivity or interfere with respective duties to their clients, prospective clients, and employer
● Ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant
information effectively
Recommended :
● Fully disclose to clients, prospects, employers all actual and potential conflicts of interest in order to protect
investors and employers let them judge any potential bias
● Disclosure of :
● Servicing as a board member
● Broker/dealer market making activities
● Holdings in companies that member recommends or clients hold
● Fee arrangements including those in which the firm benefits from investment recommendations
● Special compensation arrangements, bonus programs, commissions, and incentives
● Give employer enough information to judge the impact of conflict take reasonable steps to avoid conflict
report promptly if conflict occurs
VI B : Priority of Transaction
Required :
● Investment transactions for clients and employers must have priority over investment transactions in which
a Member or Candidate is the beneficial owner
Recommended :
● Prioritize client’s transactions over personal transactions & transactions made on behalf of the member’s
firm
82
● Personal transactions may be undertaken after clients and employer have given adequate opportunity and
time to act upon an investment recommendation
● Personal transactions include situations where the member is a “beneficial owner”
● Regular fee-paying family member accounts should not be disadvantaged to client accounts
● Information about pending trades should not be acted on for personal gains
● Limited participation in equity IPOs by investment personnel
● Restrictions on private placements for investment personnel
● Establish blackout/ restricted periods for investment personnel, no front running
● Reporting requirements for investment personnel:
● Disclosure of holdings in which the employee has a beneficial interest
● Provide duplicate confirmations of transactions
● Preclearance procedures
● Disclosure of policies regarding personal investing
VI C : Referral Fees
Required :
● Disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration,
or benefit received from, or paid to, others for the recommendation of products or services
Recommended :
● Inform employers, clients and prospects of benefits received for referrals of customers and clients >
allowing them to evaluate the full cost of the service as well as any potential partiality
● All types of consideration must be disclosed
● Encourage firms to adopt procedures regarding compensation for referrals
● Update firm at least quarterly regarding nature and value of referral compensation received if firms do not
have clear procedures for approval
VII A : Conduct as Participants in CFA Institute Programs
Required :
● Not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA
designation or the integrity, validity, or security of CFA Institute programs
Recommended :
● Must not engage in any activity that undermines the integrity of CFA charter
● Standard applies to:
● Cheating in CFA or any CFAI exam
● Revealing anything about the contents & topics of exam
● Not following the rules & polices for CFA program

83
● Disclosing confidential information on CFA program to candidates or to public
● Improperly using the designation
● Misrepresenting information on PCS or CFAI PDP
● Members can express their opinion on CFA institute or program
● Members volunteering CFA program must not solicit or reveal information about :
● Exam questions
● Deliberation related to exam process
● Scoring of question
VII B : Reference to CFA Institute, the CFA Designation, and the CFA Program
Required :
● Not misrepresent or exaggerate the meaning or implication of membership in CFA institute, holding the CFA
designation or candidacy in CFA program
Recommended :
● Do not over-promise individual competence
● Do not over promise future investment results
● Sign PCS annually
● Pay CFAI membership dues annually
● Do not misrepresent or exaggerate the meaning of the designation
● No partial designation exists
● Acceptable : candidate has successfully completed the program in 3 years claiming superior ability is not
permitted
● In written/ oral communications : usage as adjectives or after charterholder’s name. Not as nouns
84
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Chartered Financial Analyst - Level I

HOW TO APPLY COUPON

Step 1 Step 2 Step 3 Step 4

Search for Add Enter a gift card,

Ethical and Professional standards

Check out some

Portfolio Management: An Overview

Full-service asset managers- Are those that offer a variety of investment

Forum Link Video Link

Portfolio Risk And Return: Part I

Forum Link Video Link

Portfolio Risk And Return: Part II

Abnormal Return = Actual Return - a - CAPM

Forum Link Video Link

Basics of Portfolio Planning and Construction

Forum Link Video Link

The Behavioural Biases of Individuals

Behavioural biases come in two forms

Cognitive Errors Emotional Biases

Faulty cognitive reasoning, Based on feelings or

Cognitive errors are classiﬁed into two categories:

• The belief perseverance biases discussed are conservatism, conﬁrmation, representativeness,

New information may resemble or seem representative of familiar elements already

are two types of representativeness bias.

In base-rate neglect, a phenomenon's rate of incidence in a larger population

In illusion of control bias

Trade more than is prudent

Second, it is advisable to seek contrary viewpoints. As you contemplate a new

Belief perseverance bias

Anchoring and adjustment Bias

Consequence Consequences of Anchoring and Adjustment Bias As a result of anchoring and

Mental Accounting Bias

Meaning Mentally dividing money into “accounts “ that inﬂuence decisions

Irrationally bifurcate wealth or a portfolio into investment principal and investment

Meaning It is an information-processing bias in which a person answers a question diﬀerently

Focus on short-term price ﬂuctuations, which may result in long-run considerations

Meaning It is an information-processing bias in which people estimate the probability of an

Loss aversion bias

Consequence As a result of overconﬁdence bias, they may do the following:

Self control bias

Borrow excessively to ﬁnance present consumption.

Status Quo bias

Meaning It is an emotional bias in which people choose to do nothing, instead of making a

Overconﬁdence bias has two forms: prediction overconﬁdence and certainty

Fail to explore other opportunities

As a result, the people may maintain an inappropriate asset allocation

Consequences of Regret-Aversion Bias

Engage in herding behaviour

Detection of FMPs should quantify the risk-reducing and return-enhancing advantages of

Risk Management: An Introduction

Forum Link Video Link

Forum Link Video Link

Fintech : Ÿ It refers to technological innovations in the design and delivery of financial

Areas of fintech developement

Analyzing large Automated Financial record

Analytical tools Automated advice

LOS b Big data, artificial intelligence, and machine learning

Characteristics of Sources of big

There should not be selection bias and data outliers