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!作者: aidebaobao 时间: 2011-7-11 19:00
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.作者: ll11 时间: 2011-7-11 19:00
My confusion is that I.S. is a relative number. Now subtracting an absolute return, what does the value mean?作者: Windjammer 时间: 2011-7-11 19:00
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.作者: Chuckrox 时间: 2011-7-11 19:00
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".
