Please check if following conclusions regarding the suitability of ISS, VWAP & Broker trade are correct. Broker trade is additional (not questioned) Bid-Ask Spread Urgency Trading Size ISS Small High Small VWAP Small Low Small Broker Large Low Large If not correct, please kindly correct me.
VWAP’s a simple-logical-participation strategy… Characteristics are: - break up trade throughout the day, matching expected volume pattern - goal = match or improve upon the VWAP So, I would say - bid-ask spread should be small (b/c if large, then it’s a very inefficient strategy obviously) - urgency is low (because you’re breaking up through the day) - trading size is small (same pt as 2nd bullet) Implementation Shortfall is solving for optimal strategy minimizing implementation-shortfall-measured trade costs (delay, opportunity, realized P&L). Characteristics: - typically front-loaded, to reduce market impact, opportunity cost & trade risk - all of which are correlated w/longer trade horizon. So, I would say - bid-ask spread should be small (not sure when you’d want this large? maybe if it’s a block, then you can negotiate?) - urgency is high (b/c it’s front-loaded) - trading size is large (same pt as 2nd bullet) I haven’t checked the answer key… what do they say?
You mean Trade Size for ISS shall be large ? Actually there is no tangible/clear conclusion for some issues in CFAI’s guideline answers. Please refer to CFAI’s guideline answers and if you have more tangible/clear conclusions, please kindly advise.
All my notes above are directly from the CFAI readings, and I put my conclusions already. They are: VWAP - bid-ask spread should be small - urgency is low - trading size is small ISS - bid-ask spread should be small - urgency is high - trading size is large Not sure why you think ISS trade size is small? It’s front-loaded.
I didn’t read your response carefully. Looking at the guideline answer, they ask for “trading size relative to overall total volume”. You want this low for ISS - otherwise your market impact cost is high. That makes sense. So, disregard what I said earlier. Sorry.
So, from the guideline answer, you agree that ISS trade size shall be small ?
in case we will see it in the exam…I also like to add that… In this same Q there is also Intra-day Trading Volume Pattern for the 4 different securities. Their patterns are either “Even throughout day” or “Higher at end of day”. The answer says ISS is not suitable to those having highter volumes toward end of day because it is front-loaded. It is more suitable to those “Even throughout day”. I also wonder that if a security has a “higher at open of day” intra-day trading volumn pattern, ISS should be suitable, right??
AMC, yes I agree with the guideline answer. “Small” meaning relative to the average daily volume… otherwise they aren’t implementing an ISS. James@, yes I guess so …
James@Houston Wrote: ------------------------------------------------------- > in case we will see it in the exam…I also like > to add that… > > In this same Q there is also Intra-day Trading > Volume Pattern for the 4 different securities. > Their patterns are either “Even throughout day” or > “Higher at end of day”. The answer says ISS is > not suitable to those having highter volumes > toward end of day because it is front-loaded. It > is more suitable to those “Even throughout day”. > > I also wonder that if a security has a “higher at > open of day” intra-day trading volumn pattern, ISS > should be suitable, right?? I remember that the reading does not mention “intra-day trading volumn pattern”, have you seen such statements ?
AMC Wrote: > > I remember that the reading does not mention > “intra-day trading volumn pattern”, have you seen > such statements ? Schwezer mentions nothing at all. As far as I know, CFA readings mention once on Vol 6 page 49 in the example 11 but it is related to the suitablility of strategies.
James@Houston Wrote: ------------------------------------------------------- > Schwezer mentions nothing at all. > > As far as I know, CFA readings mention once on Vol > 6 page 49 in the example 11 but it is related to > the suitablility of strategies. Ya, even CFAI’s reading does not have relevant statements. Anyway, TKVM.
James@Houston Wrote: ------------------------------------------------------- > AMC Wrote: > > > > I remember that the reading does not mention > > “intra-day trading volumn pattern”, have you > seen > > such statements ? > > > Schwezer mentions nothing at all. > > As far as I know, CFA readings mention once on Vol > 6 page 49 in the example 11 but it is related to > the suitablility of strategies. Actually I mean “it is NOT related to the suitability of strategies” in my earlier post, Sorry, I think you guys know what I meant earlier anyway.