Trade Cost Measurement: Implementation Shortfall

Correct! There is no delay component nor missed trade opportunity cost in this case. There is just the explicit cost, and the capital gain/loss. The explicit cost is the trading fee as a fraction of the total theoretical purchase at the decision price: $$\displaystyle \frac{38.50}{16.24 \times 4{,}000} \approx 0.0006 = 0.06 \% $$ Since the time between the decision and the execution saw a decrease in price, there is a capital gain, which will serve as a negative component to the implementation cost: $$\displaystyle \frac{16.20 - 16.24}{16.24} \approx -0.0025 = -0.25 \%$$ These two components sum to an implementation shortfall of -0.19%.

A buy order of 4,000 shares was chosen when the price was USD 16.24. The order was soon placed and immediately executed on all 4,000 shares at a price of 16.20 with a trading fee of USD 38.50, after which the price settled at USD 16.28. What is the approximate implementation shortfall in this case?

Incorrect. It's possible to arrive at this value by making a logical error, and failing to include explicit costs.

Incorrect. This value may indicate the correct absolute value calculation of the two elements of implementation shortfall present in this scenario, but note that one of these costs actually serves to _reduce_ this shortfall.

-0.19%

0.25%

0.31%