Volume 6, page 29. One disadvantage of VWAP is “not senstive to trade size or market conditions”. What does it mean by that?
means that if thje trade is urgent or sizable compared to daily volume then the VWAP is not suitable…Implemtation Shortfall is more suitable for morning urgent trades
lol Re: Execution of Portfolio Decisions Posted by: deriv108 (IP Logged) Date: April 10, 2011 02:40PM IS(implementation shortfall) = (gain on paper portfolio - gain on real portfolio)/(initial investment in paper portfolio) VWAP is a price, IS is a percentage. Both are a measure of transaction cost. “Surprisingly”, both become algorithmic trading strategies. One is simple logical participation strategy, the other is IS strategy. VWAP can be gamed, so it’s not informative for traders who dominates. It does not account for delayed cost and missed trade opportunity. So we have IS, which solves the problem of VWAP. But it’s unfamiliar to traders(doubt it), and requires considerable data and analysis. Overall, Is for small, urgent trade, which is usually traded early in the day to minimize opportunity cost. For illiquid stock and large trade, use broker. What’s the best execution? It depends on the investment decision, circumstance and etc. Regarding to ethics in trading. 1) fallen commission: traders shift cost to implicit cost. 2) electronic trading provide more anonymity: buy-side and sell-side traders become more adversarial.
That is the disadvantage of being a candidate whose native language is not english. 
Actually, I also had a hard time to understand what’s “not informative for traders that dominate trading volume” on Schweser notes. Why can not use plain English in a topic like trading? Back to my question, VWAP works best for small trades in a non-trending markets, which may imply that it’s inappropriate in a uptrend market for large buy orders. I will add this item in my notes.
What do they mean by VWAP can be gamed?
An example of VWAP gaming: the trader can delay the trade if he thinks the ask price is above the estimated VWAP.
More on Reading 44. 1) When is quoted spread = effective spread? 2) Any price improvement of a trade? 3) How to game on opening/closing price, effective spread, VWAP? 4) Trade 200% of the value of portfolio =.= 2 buys + 2 sells for each stock. 5) Price Benchmark can be chosen by the trader. 6) Estimated [implicit] Transaction Cost: =n*(P-B) for a buy =n*(B-P) for a sell. 6) is like the implementation shortfall excluding execution cost.