TY - JOUR T1 - Choosing Benchmarks vs. Choosing Strategies JF - The Journal of Trading SP - 22 LP - 25 DO - 10.3905/jot.2006.609172 VL - 1 IS - 1 AU - George Sofianos Y1 - 2005/12/31 UR - https://pm-research.com/content/1/1/22.abstract N2 - 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 ER -