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Implementation Shortfall Costs -- what is the benchmark price?
I am quite confused about what price is supposed to be used as the benchmark price for implementation shortfall calculations -- is it the closing price of the stock on the day before the order was first instructed, or is it the price at which the order is instructed?
For example (I just made up this example):
Stock X had closing price of $20 at close on Monday (or maybe start of the day on Tuesday). On Tuesday, the manager instructed a limit order purchase of 100 shares at a price of $20.01 or less…..
So in this case which is the benchmark price -- $20 or $20.01?