disadvantage is it "does not account for trade volume"
i thought it was "volume weighted"?
so whats the dilly?作者: zwjy 时间: 2011-7-11 19:47
When it says "does not account for trade volume" I think they mean as a percentage of mkt volume.
The VWAP captures the volume of the entire mkt, so if your trade is a large portion of that volume then your trade has greater influence over that day's VWAP.作者: skycfa 时间: 2011-7-11 19:47
meaning liquidity- so stock # 1 you have 2 trades all day- 100 shrs at $20. 100 shrs at $21. Your vwap is $20.5. stock # 2. trades 2 million shrs during the day, your vwap winds up being $20.5.
If you look at a stock for the day and we say on both your vwap is $20.5, see how it doesn't really account for trade volume? 1st one, you aren't going to get much off at the VWAP if your order is of any size.作者: Chuckrox 时间: 2011-7-11 19:47
it should be more along the lines that 'high volume as a percentage of adv can skew vwap' since you would in effect be setting the vwap with your trading作者: Iginla2011 时间: 2011-7-11 19:47
I'm inclined to disagree with bannisja's answer because im sure it's based purely on the volume traded and price doesn't come into it(correct me if i'm wrong but I haven't seen any examples that take price into account).
I think it's because VWAP attempts to predict the trading volume for the day rather use the actual trading volume. A percentage of trading volume strategy would take into account the trading volume for the day.作者: Zestt 时间: 2011-7-11 19:47
wait... you think that price doesn't come into play for a VWAP? umm, kwony... i love you babe, but you are out of your element. VWAP *predicts* nothing. it takes the prints during the course of a trading day, volume weights them, and comes up with an average price. actual trading volume.作者: wake2000 时间: 2011-7-11 19:47
yes it does. you use historical trading volumes to predict what the trading volume will be for the day.
but i stand corrected on my comment that it does not use price. it does use price and the purpose of VWAP strategy is to match or beat the VWAP for that day作者: canadiananalyst 时间: 2011-7-11 19:47
I don't think it accounts for the market impact of a large volume trade.
