PT - JOURNAL ARTICLE AU - George Sofianos TI - Choosing Benchmarks vs. Choosing Strategies AID - 10.3905/jot.2006.609172 DP - 2005 Dec 31 TA - The Journal of Trading PG - 22--25 VI - 1 IP - 1 4099 - https://pm-research.com/content/1/1/22.short 4100 - https://pm-research.com/content/1/1/22.full AB - A crucial ingredient in evaluating execution quality is the choice of benchmark: evaluate execution prices relative to what? In this article, we discuss two popular benchmarks: comparing execution prices to VWAP and comparing execution prices to a pre-trade price. We show that if the executions evaluated affect the market VWAP, then the VWAP benchmark may lead to sub-optimal decisions. Traders, for example, may adopt a more costly execution strategy. When analyzing execution quality, therefore, the VWAP benchmark lets you down when you need it most: in evaluating difficult orders that may affect market prices. Our recommendation is to consistently use a pre-trade benchmark in evaluating different execution strategies (or traders or venues).TOPICS: Statistical methods, equity portfolio management, portfolio construction