Implementation shortfall formula

CFA Level III Portfolio Management
#1

Can someone please lay out the formula for implementation shortfall. textbook seems to not have one. they calculated it so many different ways in the EOC questions for chapter 30, and it’s really starting to piss me off

#2

Schweser states in their text that the CFAI is unclear on an exact formula and you should do practice questions to get used to figuring out what they’re asking.

#3

^ Thanks. That’s not exactly encouraging though. The best i’ve been able to figure out so far is the following:

implementation shortfall = Profit from Paper (or benchmark) portfolio - profit from actual trades so far (including trading costs)

#4

Yeah I mean you could hypothetically reference it like this I think…just to get the paper and actual differences out of the way I use this “formula” in my notecards:

  • = ( | CP - DP | x Total Goal Shares) - ( |CP - BP*| x Actual Shares) - Explicit Costs

But you just really need to understand…

The other was is that there are the 4 that sum up to the Implementation Shortfall:

  • Execution Costs
  • Unrealized = |CP - DP| x cancalled shares
  • Market/Realized = |CP - BP*| x Actual
  • Delay = |BP* - DP| x Actual
#5

Thanks