market impact

Not really getting the concept.

Once I understand market impact is the difference i the execution price and the previous day’s closing price - when we calculate components of the implementation shortfall.

When calculating transaction cost components it is explained to be the difference in the execution price of two consecutive trades.


Market impact is the difference from the execution price and the benchmark price.

Market impact is a (rough) measure of your execution efficiency.

Yes conceptually, I think I’m getting it. In terms of calculation however it is not clear.

Maybe my problem is that I don’t always know what the benchmark price for a given trade is.

Let’s suppose on day 1 no trade was done. The market closes at a price - which will be the benchmark price for the next day (if I’m getting this correctly).

The next day I have trade No. 1. The market impact will be the difference btw the execution price of my trade and the closing price from yesterday (as benchmark)?

In case of a second trade during that day the market impact will be the difference btw the execution price No. 2 and execution price No. 1?

I.e. The benchmark price is (can be) a new price for each single trade?

Yet we have one “original” benchmark price which we use for calculating the cost of the theoretical portfolio when breaking down IS components?

I’m not sure I was clear enough, I was trying to explain in details where I have the problem.