So June 2012 CFA season is fully over! Congratulations to those who passed, and to those who didn’t make it this time - come back fighting and you’ll get it in the end!
Every year while waiting for the results, candidates speculate on the pass rate. And every year, most candidates fear that the pass rates are getting lower.
And for good reason - the pass rates have been declining since… well, since the start, really. There is a general consensus within candidates and charterholders alike that the exams have been getting harder, and that’s probably a significant factor. I did some quick & dirty analysis this week and also found that the increase in CFA candidates is highly correlated to declining pass rates.
The CFA Institute publishes on their website all the pass rates for the CFA exams since its inception in June 1963. Here’s the data for all 3 levels, presented in graphical glory (I did have this in interactive format, but couldn’t get html to work for this blog post.)
As you can see, the pass rates have taken a swing downwards from above 80% in 1963 to 40%-50% today.
Comparing this with candidate volume, it seems that a possible significant factor is simply that more candidates are participating. Below is the number of candidates that took the exam over the same timeline. (Note: The dip in 2003 for Level I candidates is due to the introduction of the December exam)
Although pass rates have been declining somewhat before that, the large declines in pass rates happen after the early 90’s, which coincides with an exponential increase in candidates. So a highly plausible factor is that average candidate quality has been lowered by the increasing interest and candidate volume.
Taking it a step further, below is the scatter chart of candidate numbers to pass rates year by year, and the corresponding R-squared values:
As you can see, there’s some good correlation evidence there. Not perfect, but obviously declining pass rates can’t be purely down to increasing candidate volume.
So while the increasing difficulty of the exams may well be a factor, it may simply be a function of the large candidate pool and decreasing average performance as the candidate pool becomes less targeted. I suppose this analysis doesn’t necessarily disprove that pass rates are causing the candidate increase - that the CFA Institute may be lowering the pass rates on purpose to encourage multiple retakes - hence increasing the candidate volume… but I doubt it.
What do you think - do you have your own theories & explanations? New harder topics being introduced, policies, marking systems? Post your thoughts & comments below!
I write twice a week about the CFA exams at 300 Hours.