# Implemantation Shortfall

I get thats its not hard, but for some reason my brain doesnt want to learn it. Anyone have any tricks that help you remember?

try and do it in order… Delay Costs - percentage you were cost by waiting until you actually made your decision (decision - benchmark) Realized gains/loss - percentage you made or lost for real on the shares you bought (price now - price you acutally paid) missed opportunity cost - percentage you made or lost by not buying the shares leave trading cost for the end because its easiest. If you get into trouble on one of them, try and back your way into it by solving for the other 3 and finding the full overall implementation shortfall the quick way.

Thats Awesome – Thanks.

How is Implementation Shortfall a trading strategy - in particular, I’m looking at the question that was on the 2008 exam.

Rule of thumb: use execution price - day before price for profit/loss benchmark for the other three

cpierce–it is a simple logical participation strategy (i think that’s right) that uses an algorithm to place trades in order to limit opportunity costs. As such, this strategy will trade as early in the day as possible so that implementation shortfall is minimized.

No, the simple logical participation strategies are VWAP, TWAP and percent of volume. Implementation Shortfall’s not a SLPS - it’s its own strategy. The rest of what you wrote (algorithm, etc.) is correct.

just went back to my book–its a logical participation strategy (simple includes the ones you mention above)

Sponge Bob CFA - that is a fantastic visual aid!!! Cheers mate.

In the past ten years, CFAI morning paper had a question on Implementation Shortfall in 2000 and 2006. Not mentioned in any other CFAI morning past paper. It may well be in the 2010 paper…!

yeah the youtube vid is solid - that method works like a charm. thank you cfa for making this more difficult than actually necessary to learn. a fourth grader could use this method and get these problems right but for some reason cfa and schweser haven’t picked up on it.

bidder, it was on the 2008.

Hey guys: a few things CFA Dreams post Realized gains/loss - percentage you made or lost for real on the shares you bought (price now - price you acutally paid) missed opportunity cost - percentage you made or lost by not buying the shares Shouldn’t this be realised = excn price - decision price (previous day close). There’s no mention of price now here? Also, when shorting, are the calculations identical but just with a minus sign infront of each?

willispierre Wrote: ------------------------------------------------------- > just went back to my book–its a logical > participation strategy (simple includes the ones > you mention above) Just two points to sum it all: Just rem Implementation shortfall is not a simple Logical Participation Strategy. Next, it need not be cal by working on the explicit costs and market movt costs (realised profit loss, delay costs or MTOC). There is a overall formula (use this if we are only ask what is the implementatin shortfall % or \$): [Paper portfolio return - Real portfolio return] / Paper portfolio invt. Interpretation: The implementation shortfall will be positive (profit foregone), if prices are rising when a trader is attempting to buy or if prices are falling when a trader is attempting to sell (i.e. paer return in both situations will be greater than real return).