How Itra-day trading volume parttern affect Implementation shortfall? In the 2008 exam, it says that if trading volume is higher at the end of day, the implementation shortfall strategy will be biased? how?
Implementation shortfall focuses on trading early in order to minimize the opportunity costs and usually executes the order rather quickly – biased towards the prices in the earlier part of the day when there is less volume I believe…
The following text is copied only for convenience. FYI, “front-loaded” appears twice in the curriculum.
“Implementation shortfall strategies seek to minimize implementation short- fall or overall execution costs, usually represented by a weighted average of mar- ket impact and opportunity costs. Opportunity costs are related to the risk of adverse price movements, which increases with trading horizon. Consequently, implementation shortfall strategies are typically “front-loaded” in the sense of attempting to exploit market liquidity early in the trading day. Implementation shortfall strategies are especially valuable for portfolio trades, in which control- ling the risk of not executing the trade list is critical. They are also useful in transition management (handing over a portfolio to a new portfolio manager), where multiperiod trading is common and there is a need for formal risk controls.”
I know my mistake. “trading volume is higher at the end of day”= trade late in the day