Implementation shortfall (IS) is defined as a measure of trading inefficiency– i.e., it measures the cost of trade implementation. For purchases (long positions), it is equal to the decision price or desired price (the price prevailing at the time a trader/ investor decides to trade- i.e., submits the order to the buy-side trading desk) minus the average execution price (actual price or transaction price or arrival price), including commissions, all related to the decision price.
Its disadvantages are as follows:
- It might turn out to be an unfamiliar methodology for evaluating traders.
- It requires collection and evaluation of more extensive data.
- Maintenance of the extensive data is a daunting work.
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