why implementation shortfall cannot be gamed?

Is it because it is front loaded and fill thr order early in the day and takes into account true opportunity cost.?

Can anybody explain?

Implementation shortfall by definition cannot be gamed , bcause the benchmark is already known when the order is released in the market . For VWAP and other price strategies , the benchmark itself is not exactly known and so the trader could game their trades to look good.

also for VWAP, the trader can game by timing the transaction according to the market price. But the implemenation shortfall strategy has a benchmark price, the price when delivered. etc…

Since IS also captures delay cost as a part of implicit cost, it can not be gamed.

If you see VWAP is gamed either by trading early or delaying the order. Suppose Stock price is trending. It’s closing price for the day is higher than the day’s opening price. Trader may hold it for the day & will trade it early next day to beat the day’s VWAP.

Implementation shortfall is hard to game. But it tends to fill order as early as possible. Is this a kind of gaming? The implentation shortfall strategy for buy orders may underperform in a bear market.

in that case - you would not be comparing the implementation shortfall #, but you would be comparing with the market adjusted Implementation shortfall number. That will take into account the effect that the market had.


Suppose after removing the effect of market return (as explained in text) if MAIS is -ve, this wont be helpful. right?