CFA Institute

What are the best first use cases?Start where state, action, and reward are clear and the feedback cycle is short: adaptive trade execution, dynamic portfolio rebalancing, and cost-aware option hedging. These map cleanly to RL/POMDPs, have measurable baselines (e.g., time-weighted average price/volume-weighted average price [TWAP/VWAP], discrete delta), and abundant historical data for offline training. Can I train only on historical data, or do I need live exploration?You can (and usually should) start with offline RL using your fills, prices, and positions. Then validate in a high-fidelity simulator with costs/impact/latency, run shadow mode alongside your existing process, and promote gradually with guardrails (caps, kill-switch, rollback). How do I build risk and costs into the objective?Make risk and costs part of the goal. Define the reward as the money you make after subtracting trading fees/price impact and a penalty for risk. In words:Reward = Profit − Costs − λ × Risk (risk can be tail risk, such as CVaR, drawdown, or mean–variance). Use distributional RL to capture rare big losses (“the tails”). And set hard limits — on exposure, turnover, and market participation — both while training and when the system runs live. IRL versus imitation learning — when do I use which?Use IRL to infer the underlying objective from behavior (managers, clients, “the market”) when you want portability and the ability to surpass demonstrations. Use imitation to quickly mimic actions when you don’t need a reward function. Ranked data? Consider T-REX. Probabilistic, flexible rewards? MaxEnt/Bayesian (GPIRL). What metrics should I monitor to know the policy is working?At minimum, track implementation shortfall (IS) for execution quality, risk-adjusted return after costs (e.g., Sharpe or mean–variance utility) for performance, and CVaR/drawdown for tails. Add drift detectors (feature, policy, regime) and compare to baselines (TWAP/VWAP, risk parity, discrete delta). How do I make the RL/IRL policy compliant and explainable?Log state → action → outcome with immutable audit trails; publish a “policy card” (objective, constraints, data lineage, promotion criteria); add explainability (feature attribution, counterfactuals), runtime guardrails (exposure/participation/loss caps), challenger policies, and human-in-the-loop approvals. These actions turn the model into an accountable decision system, not a black box. source

Since its inception in 1945, the Financial Analysts Journal (FAJ) has advanced some of the investment profession’s most influential ideas by providing an outlet for innovative thinkers. We trace the FAJ’s history by identifying the most prolific contributors and innovations featured over its first 80 years and in each of nine financial eras. Using the comprehensive database and rigorous methodology that we developed, this article provides rankings of the top authors and the most frequent words in titles and examines the context in which these words were used to identify seminal ideas and the authors behind them. source

Industries worldwide are evolving rapidly amid new technologies and policy shifts, while markets are more interconnected than ever. Information travels almost instantaneously across global networks, meaning a shock in one market can ripple quickly through others. The investment industry must continually adapt to changing economic and market environments, yet traditional financial models — built on assumptions of equilibrium and rational actors — often struggle to capture the unpredictable, networked, and nonlinear behaviors observed in financial markets. This report reconsiders how we understand financial markets, framing them as complex systems and offering alternative approaches to traditional financial models. By applying methods from complex systems sciences, it equips financial professionals with new tools for systemic risk analysis, portfolio management, and system-level investing. Techniques such as agent-based modeling and network theory can be used to understand and capture complex market phenomena such as emergent behavior, nonlinearity, feedback loops, and structural resilience. For portfolio managers and risk analysts, adopting a systems perspective means moving beyond normal distributions and equilibrium-based models to capture investment complexity and better inform scenario planning, portfolio optimization, and risk management. For regulators, it means leveraging new models to strengthen systemic risk oversight and macroprudential policies. source

Because of their legacy and major differences in organic evolution, the markets in the APAC region present a complex corporate governance landscape. Company ownership structures are often concentrated, legal and regulatory frameworks vary, and language diversity adds layers of complexity. Even though AGMs are essential to investor protection in APAC, they vary widely in terms of access, timeliness and availability of disclosures, and attendance logistics with respect to convenience and cost, creating uneven participation and significant negative impacts on accountability. Investors cannot take for granted basic conditions or hygiene factors when it comes to AGMs: Late or compressed notice periods, limited English‑language disclosures in some markets, and barriers to attending or speaking opportunities at AGMs remain common. The impact varies depending on where shareholders stand with respect to their holding in a company. For example, many institutional investors stay away from AGMs by choice because they prefer to engage behind the scenes. Also, in many markets, retail investors often struggle to be taken seriously. Majority‑shareholder dominance can further dilute minority voice. If voting outcomes are predetermined, investors see little value in participating because of low returns on stewardship efforts. Yet it is not all gloom and doom, and in some markets, reform energy is building. Japan’s decade‑long governance evolution and South Korea’s “value‑up” campaign have intensified scrutiny of capital efficiency, board accountability, and shareholder rights. In India, investors have become vocal on resolutions pertaining to seemingly disproportionate compensation increases for executive directors and senior management. In Malaysia, some nongovernment and not-for-profit entities are doing an excellent job at educating investors on what they should focus on in AGMs. These developments lead to optimism that it is possible to make structural progress and recalibrate AGMs across the region — transforming them from mere “ticking-the-box” compliance exercises into meaningful stewardship touchpoints and deeper, fruitful engagement. In 2013, CFA Institute published the seminal report “Shareowner Rights Across the Markets,” a comprehensive reference guide to help investors understand and compare shareowner rights across 28 global markets, highlighting the importance of active ownership, including the exercise of shareowner rights for the purpose of value protection and creation. This report was followed in 2020 by “Stewardship 2.0,” in which CFA Institute called for outcome‑focused stewardship codes, asset owner leadership, and integration of material environmental, social, and governance (ESG) factors. This current research extends the principles of those previous reports into further review and practice. By applying those principles, as well as the most up-to-date practices, to AGMs, we seek to identify where AGM design and conduct either enable or frustrate effective stewardship, and we offer stakeholder‑specific actions to enhance performance and produce balanced outcomes. source

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Portfolios Reflect Goals and Values Currently, young investors’ portfolios often incorporate both their goals and values. They are more likely than older cohorts to hold cryptocurrencies, exchange-traded funds (ETFs), and investment real estate in their portfolios, and they also show strong demand for customized or niche investments not widely available to retail segments, such as private equity, private credit, and sustainability-oriented investments. Values-based Investing Is Becoming Mainstream More than 90% of Gen Z and millennial investors surveyed say it is important to align their investment portfolio with their personal values, and 43% express interest in values-based or impact investments. For many, aligning portfolios with environmental or social priorities is not only a unique preference but also an expectation of modern investing. Decision Making Is Digital, Diverse, and Behavioral Information sources have diversified. Gen Z and millennials learn about finance through advisers, apps, social media and, increasingly, AI tools. About one-third have already used generative AI for financial education. Yet human advisers remain the most trusted source of guidance. The opportunity lies in meeting these clients where they are — online and mobile-friendly platforms — while helping them navigate and verify the growing flood of digital information. Behaviorally, young investors display both confidence and vulnerability. “Many admit to making investments driven by fear of missing out (FOMO), especially in trending assets such as crypto.” Overconfidence in their ability to interpret markets is common. Advisers can add the most value by coaching clients through volatility, emphasizing investment discipline, and grounding decisions in long-term goals rather than online momentum. source