market adjusted implementation shortfall? between, measures, adjusted, difference, understand

Carson

I can understand the concept of implementation shortfall which measures pnl difference between a paper trade and a real trade. So the smaller the number the better.

Market adjusted I.S subtracts the return of the stock from the I.S. I am confused. What does this really measure? Can someone say the meaning in a sentence?

Thanks!

aidebaobao

Implementation Shortfall, as a measure, is usually used for small & urgent trades. These trades may have market impacts but they are usually very small. So it's fair to extract the market movement from it.

ll11

My confusion is that I.S. is a relative number. Now subtracting an absolute return, what does the value mean?

Windjammer

Not sure what you're asking...Implementation Shortfall is the difference between the paper portfolio's return and a actual portfolio's return. All are returns.

Chuckrox

I can understand implementation shortfall which is the differences of two abosolute returns.

I.S.(stock i) = (PNL(paper) - PNL(portfolio)) / (initial investment in paper trade)

The closer this number to zero, the better "trading".

M.A.I.S. (stock i)= I.S.(stock i) - Return(stock i)

This definition is not intuitive to me. How to interpret the number? The smaller the better or the larger the better? etc.

Thanks!