MAIS (market adjusted implementation shortfall) i have trouble understanding it; could anybody shed some lights?
I think the assumption here is that the trader is after active returns. So while the while the realized g/l, delay and opportunity reflect costs, if you back out the general movement of the market you might not have missed your opportunity for active returns. For example, if you believe a stock is 5% under priced and and the market goes up by 5% but so does the stock, it is still under priced by 5%. Under a “normal” I.S. scenario you would show a bunch of positive costs for all the categories because the market moved up. Under a “market adjusted” I.S. you wouldn’t. These are my own thoughts, as I have not seen this information in CFAI or Schweser.
basically you subract the general market movement adjusted by beta, correct?
So the key is underpriced? But if I sell these securities; i will incur a loss not gain. This theory works only I will hold these underpriced securities long enough and they will eventually appreciate (hopefully).
where is this in the curriculum or schweser? thanks. i may have skipped it entirely.
vol 6. p27 curriculum. feel free to jump in the thread after reading and you understood it clearly.
cfasf1 it’s in the portfolio execution ( I think SS16) Basically what they say is - you might have a shortfall of implementation of 1% but if the market went down2% while implementing your execution strategy, you actually had a 1% gain in comparison to the market, a 1% ‘surplus’ as opposed to a shortfall
to add - they are saying that you should be judged on how you did extracting the market movements - based only on the implementation strategy. a trader should not be penalized for market movements.
at work. i wish i wasn’t… will read later. thanks for the heads up guys.
yeah, i think we need to include to beta of the stock when making the adjustment. if the market fell 1% and beta is .9, we add/subtract .9% from our calculated cost.
ilvino Wrote: ------------------------------------------------------- > yeah, i think we need to include to beta of the > stock when making the adjustment. if the market > fell 1% and beta is .9, we add/subtract .9% from > our calculated cost. if you read p27 of vol 6. you will find book does this: MAIS = IS - E (Ri) It’s subtracting the positive return of the asset i not the negative return. That’s why I can’t seem to understand this.
IS is a cost, so you are subtracting the market movement from the cost which will lead to a lower cost.
mwvt9 Wrote: ------------------------------------------------------- > IS is a cost, so you are subtracting the market > movement from the cost which will lead to a lower > cost. I guess it can also be a higher cost if the market is moving in the opposite direction?
ilvino Wrote: ------------------------------------------------------- > yeah, i think we need to include to beta of the > stock when making the adjustment. if the market > fell 1% and beta is .9, we add/subtract .9% from > our calculated cost. correct I omitted to say that. if the market fell 0.9% you would reduce your cost (if you were a buyer) by 0.9% and increase your cost with 0.9% if you are a seller right?
Suppose the market and asset (beta = 1) move positively by 2% in my trading time frame; my I.S. is 0.5%; what’s my market adjusted implementation shortfall? So according to the curriculum: MAIS = IS - E ® = 0.5% - 2% = -1.5% (So we actually performed not too bad after adjustment). This stuff is counterintuitive.
maratikus Wrote: ------------------------------------------------------- > mwvt9 Wrote: > -------------------------------------------------- > ----- > > IS is a cost, so you are subtracting the market > > movement from the cost which will lead to a > lower > > cost. > > I guess it can also be a higher cost if the market > is moving in the opposite direction? Yep. That is why I said at the beginning that I think this assumes you are after active return. In this case if the market dropped, but the stock went up, you missed out on some mispricing in the market and lowered your future active returns. This part may be wrong, but what you said is correct for the exam IMO.
thanks, mwvt!