2017 Level 3 Mock PM Question 53

I don’t understand why only commission cost should be included in assessing a traders performance? I thought the point of implementation shortfall was to look at all the aspects of the execution?

That was a very tricky question I find. I was under the exact same feeling about the whole point of implementation shortfall. I hope there won’t be too much of those on exam day …

From the CFAI curriculum though : “Market movement is a component of the last three of these costs (Realized profit/loss ; Delay costs (slippage) ; Missed trade opportunity cost (unrealized profit/loss)). However, market movement is a random element for which the trader should not bear responsibility. It is now common to adjust implementation shortfall for market movements”.

It is now common to adjust implementation shortfall for market movements

isn’t that mean adjust market movement by beta?!

[IS - B x Rm = IS%]

reduce implementation shortfall by ( beta x market return), not commission cost

correct me, please.


Yes but the only cost imputable to the trader is the commision, the delay was due to market prices (weren’t suitable as per order of the client)

I was also confused by this question. Considering the above quoted statement of the cfa curriculum, I understand it as follows:

Full implementation shortfall are the costs of trading, not only explicit trading cost but also implicit costs. The trader however should not be hold accountable for market movements. Market movement is a component of the implicit costs, namely realised proft/loss, delay costs, missed trade opportunity costs.

Not fully clear to me is how to assess the trader’s performance correctly. There seem to be two options, either assess only the explicit trading costs as suggested by the question or calculate market-adjusted implementation shortfall. In the first case we assume, implicit costs are fully due to market movements whereas in the second we try to remove it by comparing with the overall market movement.

Any thoughts?

Where do you guys get the 2017 Mock from?

It’s part of the cfa qbank e.g. the online practice questions