RT Journal Article
SR Electronic
T1 TCA Benchmarks: <em>One or Many?</em>
JF The Journal of Trading
FD Institutional Investor Journals
SP 87
OP 89
DO 10.3905/JOT.2009.4.3.087
VO 4
IS 3
A1 Chris Sparrow
YR 2009
UL https://pm-research.com/content/4/3/87.abstract
AB As Transaction Cost Analysis (TCA) has matured, the issue of picking the correct benchmark to measure trading performance has been raised by many Head Traders. A desire to simplify the process by determining a single benchmark has been expressed. While appealing, the cost of simplicity of TCA analysis using a single benchmark is that not all of the details of the trading performance may be captured. While it may be possible to define a single benchmark based on a specific implementation strategy, there are many different types of trading strategies and so a benchmark that may be suitable for measuring the performance of one trading strategy may not be suitable for a different trading strategy that has different objectives. The author suggests that the optimal TCA benchmark should be tied to the implementation instructions and any order constraints, and further that for a given trading strategy, the use of multiple benchmarks may provide for a richer analysis of trading performance. There is a trade-off between the simplicity of using a single TCA benchmark and the richness of the TCA analysis that comes from using multiple TCA benchmarks.TOPICS: Performance measurement, quantitative methods, statistical methods