Implementation shortfall

CFA Level III
#1

Hi Guys, For a sell trade in implementation shortfall

Do i just reverse everything in the formula

I.e. IS sell = Real portfolio gain - Paper portfolio gain

Originally, IS buy is Paper portfolio gain - real portfolio gain

Missed trade (sell) = (DP - CP ) x number of shares not executed

In A buy trade, Missed Trade cost = (CP - DP) x number of shares not executed.

Thanks

#2

Anyone can provide some advise?

#3

i dont think you need to flip anything…

or i havent found a question that had to be flipped…

maybe this has to do with…

when you are buying. and the cost goes up, that is a cost. but when the price goes down… thats a negative cost (account benefit).

opposite for selling…

#4

Thanks but I saw from schewser or either cfa curriculum that u need to reverse it. IS sell = real portfolio - paper formula. But it nvr srate whether need to reverse the formula . However for a sell trade implicit cost is BP - EP

#5

If a sell questions come up, I will be annoyed!

#6

Just use your logic, lets say you want to sell a script at $20, but delayed decision, it has gone down to $19.90, so formula and calculation methods remains same.

#7

Lawence, the formulas would need to be reversed in the sense that since you are selling now, a gain would mean getting a higher price instead of a lower price which would be the case if you are purchasing. Do be careful, IS would still mean the differance between the gain on a paper portfolio and the real portfolio.

#8

Thanks… but I am stun in the current state. I.e. to say no reverse ?

#9

No need to reverse. The sign will do it for you.

Positive cost is a loss if you buy, and a profit if you sell

Negative cost is a profit if you buy, and a loss if you sell