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Implementation Shortfall

Mark Kritzman, Simon Myrgren and Sébastien Page
The Journal of Portfolio Management Fall 2006, 33 (1) 25-30; DOI: https://doi.org/10.3905/jpm.2006.661367
Mark Kritzman
President and CEO at Windham Capital Management in Cambridge, MA.
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  • For correspondence: mkritzman@windhamcapital.com
Simon Myrgren
Vice president-research at State Street Associates in Cambridge, MA.
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  • For correspondence: smyrgren@statestreet.com
Sébastien Page
Vice president-head of Portfolio and Risk Management Group at State Street Associates in Cambridge, MA.
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  • For correspondence: spage@statestreet.com
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Abstract

Implementation shortfall refers to the total cost of buying or selling a set of securities or of transitioning from one set of securities to another. It comprises the explicit costs of commissions and bid-ask spreads as well as implicit costs such as market impact and the opportunity cost of transacting at what may be disadvantageous prices. A comprehensive analysis of implementation shortfall uses a unique sample of 800,000 security transactions to provide information on component costs and methods of trading. Market trades cost nearly six times more than internal crosses. An adjustment to implementation shortfall to account for liquidity and risk makes it possible to compare the quality of portfolio transitions.

TOPICS: Portfolio construction, equity portfolio management

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Implementation Shortfall
Mark Kritzman, Simon Myrgren, Sébastien Page
The Journal of Portfolio Management Oct 2006, 33 (1) 25-30; DOI: 10.3905/jpm.2006.661367

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Implementation Shortfall
Mark Kritzman, Simon Myrgren, Sébastien Page
The Journal of Portfolio Management Oct 2006, 33 (1) 25-30; DOI: 10.3905/jpm.2006.661367
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