Mosaic Theory in Financial Analysis

The Mosaic Theory

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Question

The mosaic theory holds that an analyst:

Answers

A. Can use material public information or nonmaterial nonpublic information in the analyst's analysis.

B. Should distinguish between facts and opinions in research reports.

C. Should use all available and relevant information in support of an investment recommendation.

D. Violates the Code and Standards if the analyst fails to notify her or his employer of the Code and Standards fails to have knowledge of and comply with applicable laws.

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Explanations

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A. B. C. D.

This question pertains to Standard V (A), Prohibition against Use of Material Nonpublic Information. The mosaic theory states that an analyst may use material public information or nonmaterial nonpublic information in creating a larger picture than shown by any individual piece of information and the conclusions drawn become material only after the pieces are assembled. All the other answers describe violations of the Code and Standards, but are not the mosaic theory.

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