I’m wondering if there are ever scenarios where Volume Weighted Average Price (VWAP) algorithm strategy would be used over Implementation Shortfall algorithm? It seems Implementation Shortfall algorithm is better in every way except that it is "tough to understand’ and requires lots of “analysis”.
Are you sure? Does that mean that VWAP is more suitable if there is heavy volumes at the end of the day all things equal between the two? Or is there a third option better still?
1, “Urgent” makes the difference between I/S and VWAP. 2, Higher volume at end of the day will make the front-loaded I/S less suitable. 3, VWAP works best for comparing smaller trades in non-trending markets.
Just reviewing one of my Schweser practice exams where it compares the justification of different algorithmic trading strategies… For VWAP, it gives the following three reasons: (1) narrow spread, (2) low urgency, (3) small relative daily volume. Implementation Shortfall is part of the same question, and its justification is “high urgency level”.