CFAI on pg 26 reading 44 states… “Delay costs reflect change in price (close to close price) over the day an order is placed when the order is NOT EXECUTED that day, the calculation is based on amount of order filled subsequently” In the example that follows on the same page, they have TUesday where no orders are placed and nothing is executed and they calculate delay costs as 10.05-10/10. 10.05 being the closing price on tuesday and 10 being the benchmark/Mondays Close. OK this makes sense. In the description above it says the change in price over the day an order is placed when the order is not executed that day. There was no execution on Tuesday so I see why they calculate Delay costs in this example… On the next day Wednesday, a partial order is filled to buy 700 at 10.07. They did not complete the full order, but a trade WAS executed on this day. In the example below it seems like we have the same type of day as this wednesday only the calculate delay costs in it. SO… in EOC question 11B It says on a Tuesday100 shares are purchased at 10.08 per share and it closes at 10.01. 10 was the benchmark. In the answer to calculate Delay Costs, they take 10.01-10/10, which is Tuesdays close- previous close. My question is that on this Tuesday in the second problem, an order WAS executed on Tuesday and CFAI says that Delay costs are only calculated when the order is NOT EXECUTED that day. What am I missing and why did they exclude Delay from Wed in the top example and include it in Tues of the second example? I am definitely missing something here.
on a side note. the LOS on implementation shortfall is one of the only LOSs that specifically says to be able to " calculate, interpret, AND explain implementation shortfall" i would get this down pat if i were yall. only they dont do a good job explaining it in detail imho
talk’in to yourself.
touche
I don’t think you can have delay costs on the same day the trade was ended or abandoned?
Think of it this way. Whenever you delay your order, you have either a loss or a gain. There are two components to this delay in the CFAI curriculum: Delay Costs and Realized GnL. The delay costs refer to the difference in the prices when you decided to place the order (revised benchmark price or decision price, same thing) and the original benchmark price. The Realized GnL cost refers to the execution price and the revised benchmark price or decision price. Delay costs always refers to the original benchmark price and the realized GnL refers to the revised price. Since in this 11b example there were some shares purchased on Monday, no delay costs for Monday, notice its 0%. Delay costs exists for tuesday because there were trades executed on Tuesday that were intended to be executed on Monday. That’s the delay. Let me see if I can summarize what I just said. Delay Costs (difference from original price to next day open) Realized GnL Costs (difference from the current day’s open and the current day’s execution) Hope that helps.
it does. can you explain why they fail to account for delay costs on wednesday then? at the bottom of page 26 CFAI reading 44? is it because they revised their trade from 1000 @ 9.98 to 1000 at 10.07?
I dont have my book in front of me, but maybe it has to do with weighting the delay costs by the weight of the total order filled. Delay costs have to be weighted by what you BOUGHT: in your first example, the weight is (0/total order) which = zero = exclude wednesday in the EOC, is the 100 purchased shares only part of the total order? If so (or I guess even if not) you calculate delay costs as (100/total order) * (10.01-10/10)
Schweser says Delay Costs= “difference between the closing prices on a day the order was not filled and the previous day closing price” pg 40 SS16 #7 it also says on pg. 20 Delays Costs= previous day closing costs-benchmark price CFAI says Delay costs= the “close to close movement price movement over a day an order is placed when the order is not executed” its all so confusing. but i think i am getting it down just doing problems over and over.
Hmm…I could see how the terminology could be confusing. In the EOC, a trade was executed on Tuesday, but the entire order wasn’t filled.
is that what they mean by “executed” . do they mean “Executed in full?” what is the meaning of life?
I also think why there are no delay costs on Wednesday is no trades were placed. Even if you go through the formula it will amount to 0 because you have to calculated Fill/Order which is 0 in this case.
Delay costs (slippage), reflecting the change in price (close-to-close price movement) over the day an order is placed when the order is not executed that day; the calculation is based on the amount of the order actually filled subsequently. (Level III Volume 6 Portfolio: Execution, Evaluation and Attribution, and Global Investment Performance Standards , 4th Edition. Pearson Learning Solutions 26). I think the last sentence clears it up. Calculation is based on what was filled.
yeah i see it now. their wording is confusing. on Wednesday, I consider that a day when the order was not executed because there were no trades placed that day. what they mean is the closing price on the day before the trade is executed minus the benchmark price.
SkipE99 Wrote: ------------------------------------------------------- > yeah i see it now. their wording is confusing. on > Wednesday, I consider that a day when the order > was not executed because there were no trades > placed that day. > > what they mean is the closing price on the day > before the trade is executed minus the benchmark > price. Yeah, Stalla uses the term revised benchmark, which is the closing price on the previous day.