The formula about caluculating components in implementation shortfall is in the case of buying stocks.
But what about the case of selling stocks? Any differences need to be noticed?
No much more than reversing the signs I’d say.
I don’t know if they will come up with anything like that in the questions.
It’s difficult because, if you sell a stock for 20$ and at the closing price that you use to compute your implementation shortfall a few days later, it is worth 22$, would you say that you lost 2$ although it’s a stock you don’t hold anymore? What fell under “realized profit and loss” in the case of a sale looks more like an opportunity cost here. I don’t think it’s that simple to reverse the method.
There is a question on the implementation shortfall computation in the case of a sale in the EOCs of this chapter, but it was a source of multiple questions on this forum and I would say it was hard to find an agreement on how/why they computed things (also because they used a bid ask spread, and sometimes the reference was the bid, sometimes the midpoint…)
For now I just disregard this topic, and I will start worrying if I see that this comes up in the mock exams.
Of course the basic math is to reversing the sign but I am afraid it’s not a B&W part of the program…
I personally focus more on the core definition of the elements that make up the IS and then I try to reflect them into figures once I go through the item set :
> Do we have commissions/ Taxes? Well that’s an explicit cost ;
> Is there any delay between the decision price (which is usually the closing price of the day before) and the actual transaction price? Well then we might more likely than not have a realized loss ;
> Have we delayed the transaction by one day at least so that it can be found a delay cost? ;
> Have we partially cancelled the transaction? Here we go with an opportunity cost ;
that’s the way I tend to approach IS
Sorry my definition / computation method for realized profit and loss was wrong anyway… never mind!
I forget the exact terminology but there is also the cost between the price when the order is actually sent to the market, and the actual execution price received. Like a slippage cost…market impact cost or whatever it’s called.
Hi S666,
thanks for your input. I reviewed the part and it’s actually the 4 components mentioned above.
The topic you are referring to I think is still the “realized loss” while the “slippage cost” is a synonim of delay cost. I think 4 elements are arleady
enough for this exercise 
Cheers
Strange, I remember a CFAI AM mock I did that explicitly broke down the individual cost from the time the order was sent to market until it was executed and the difference in price between those two elements.
If I have time I will try to dig it out to see if I was just imagining things or if that was indeed the case.
Let me know please,
BTW we are talking about one of the trickest topics here, let’s take nothing for granted.
Cheers
It’s all right! no one of us is a scientist here Myriam, everybody (me first) is here to learn.
Best
Hi S666, FYI I come across a Mock Exam which referred to the Market Impact as the impact on security prices you might have because of trading …e.g. a P.O. with the stock trading at a B/A of $32.21-32.25…if the order is finally executed at $32.32 you are going to have a 32.32-32.25 (ask) of 0.07 per share of Market Impact…
So to close the loop around MI we can deem it as an additional topic that might come up along the implicit costs calculation while not specifically included in the IS framework.
I personally tend to consider Market Impact as somehow the sum between realized loss + delay cost also because in the example I mention they specifically refer to Market Impact AND opportunitiy costs separately which let me think that if IS is made up by 3 implicit costs i.e. realized loss, delay costs and opp costs therefore Market Impact should represent more or less the realized loss + the delay cost.
I am pretty sure that if Implementation Shortfall calculation is asked is rather difficult that it’ll be combined with the Market Impact definition though.
Best
Yes, that was it…Market impact. I think you are referring to the exact same question I mentioned. I also find the whole IS calculation pretty tricky as it is often presented in slightly different ways which makes it hard to build a set of hard and fast rules.
Anyhow…hopefully it won’t come up, and if it does…well we’ll just have to do our best and try to get some partial point 
Thanks for updating the thread
My pleasure Sir.
Regards,
[quote=“sunseeker”]
Hi S666, FYI I come across a Mock Exam which referred to the Market Impact as the impact on security prices you might have because of trading …e.g. a P.O. with the stock trading at a B/A of $32.21-32.25…if the order is finally executed at $32.32 you are going to have a 32.32-32.25 (ask) of 0.07 per share of Market Impact…
So to close the loop around MI we can deem it as an additional topic that might come up along the implicit costs calculation while not specifically included in the IS framework.
I personally tend to consider Market Impact as somehow the sum between realized loss + delay cost also because in the example I mention they specifically refer to Market Impact AND opportunitiy costs separately which let me think that if IS is made up by 3 implicit costs i.e. realized loss, delay costs and opp costs therefore Market Impact should represent more or less the realized loss + the delay cost.
I am pretty sure that if Implementation Shortfall calculation is asked is rather difficult that it’ll be combined with the Market Impact definition though.
Best
[/quote
Why not use the midquote as benchmark price instead of ask price?
I think we use midpoint quote as benchmark price only to estimate the total IS as a whole,
that’s however something I have very seldom come across (5% of times during my exercises?)