quiz on shortfall strategy trade

Wendy01

Why does shortfall strategy trade heavier early in the day?

bboo

minimise mtoc

bpdulog

Should be to minimize realized loss from the decision price. I could have decision price 40 and fill my entire order at 45 two hours after open with huge implementation shortfall realized loss and 0 mtoc.

If using limit orders i may cancel trade increasing mtoc...or I could raise my order price against my benchmark and increase delay costs.

Hrm I think you can really make a case for everyone.

How about "to minimize implementation shortfall to the decision price."



Edited 1 time(s). Last edit at Thursday, May 19, 2011 at 05:27AM by Paraguay.

mp3bu

As I remember to minimize opportunity cost. VWAP tries to minimize market impact. But implementation shorfall strategy tries to reduce opportunity cost. relative to paper portfolio.