I am confused by the statement in the raised example on CFAI text V6 P26 that “The benchmark price is Monday’s close at 10.00”. Shall the benchmark price be the price of 10.08 at which the remaining 300 shares is cancelled ? My reason : The gain from the paper portfolio is : (10.08-10.00) x 1,000 = 80 The gain from the actual portfolio is : (10.08-10.07) x 700 – 14 = - 7 Implementation shortfall = 80 – (-7) = 87 Since 10.08 is used to measure the gains of both paper and actual portfolio, hence, 10.08 shall be the benchmark price. Am I wrong ? Anyone can clarify ?
10.0 is the prevailing price when the decision to trade was made. The example states that the decision was made on Tuesday before the market opened. This includes executed as well as cancelled trades. It makes sense that it serves as the basis to measure both delay (executed) and missed trade opportunity costs (cancelled).
10.0 is the price you would buy at if there was no friction at all between decision time and actually making the investment. Since the idea of IS is to see how much it costs to implement an idea, 10.0 is the benchmark price.