Implementation Shortfall

Example:

• On Wed, the stock price for Megabits closes at $20 a share, the Benchmark price
• On Thursday, the portfolio manager decides to buy Megabits and submits a limit order for 1000 shares at $19.95
• The price never falls to $19.95 during the day, so the order expires unfilled. The stock closes at $20.05, the relevant Decision price.
• On Friday, the order is revised to a limit of $20.06. The order is partially filled that day; 800 shares are bought at $20.06 (Execution price)
• The commission is $18
• The stock closes at $20.09 (the missed opportunity Closing price), and the order for the remaining 200 shares is cancelled and unfilled
• Calculated the implementation shortfall