EXTENDED IMPLEMENTATION SHORTFALL FRAMEWORK:
INCORPORATING AGGRESSIVENESS AND LIQUIDITY COSTS
Rahul Rangotra
Assistant Professor
Department of Management Studies
Central University of Kashmir, Ganderbal, Jammu and Kashmir
Abstract. Traditional Implementation Shortfall (IS) proposed by Perold (Perold, 1988) helps to measure trading cost arise during the implementation of trade by portfolio manager or trader. It has three components delay cost, trading cost and, and opportunity cost. This traditional IS does not consider the cost of aggressive execution at the time of trade urgency and liquidity cost in case of less liquid securities. The extended IS model in this paper tries to fill this gap and propose the framework which consider aggressiveness cost and liquidity cost. The proposed framework is more practical and intuitive to measure the trading cost and does not penalize the trader in case of trade urgency and less liquid securities. This will help the traders, brokers, investors and other stakeholders.
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Source: International Journal of Applied Mathematics
ISSN printed version: 1311-1728
ISSN on-line version: 1314-8060
Year: 2024
Volume: 37
Issue: 4
References
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[2] Collins, B. and Fabozzi, F.J. (1991) ‘A methodology for measuring transaction costs’, Financial Analysts Journal, Vol. 47, No. 2, pp.27–36.
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[4] Keim, D.B. and Madhavan, A. (1998) ‘The cost of institutional equity trades’, Financial Analysts Journal, Vol. 54, No. 4, pp.50–69.
[5] Kissell, R. (2013) The Science of Algorithmic Trading and Portfolio Management, Academic Press, Oxford, UK.
[6] Perold, A.F. (1988) ‘The implementation shortfall: paper versus reality’, The Journal of Portfolio Management, Vol. 14, No. 3, pp.4–9.
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