2016年6月cfa基础执行与再平衡单页

MarketMicrostructure

Investingisa3-stepprocess:investmentresearch,portfoliomanagement,andtrading.

Portfoliomanager

Professionaltrader Client

MarketMicrostructure:OrderTypes

Tradeoffbetweentradeexecutionspeedandobtainingthebestprice.

Marketorder:tradeimmediatelyatthebestpossibleprice.

Speedofexecution,priceuncertainty

Limitorder:tradeatthelimitpriceorbetter.

Priceofexecution,speeduncertainty

MarketMicrostructure:MarketTypes

Threemaincategoriesofsecuritiesmarket:

Quote-driven(dealer)market:everyonewithdealer

Order-drivenmarket:directbetweentraderswithoutdealer

Brokeredmarket:relyonbrokertofindcounterparty

Afourthmarket,Hybridmarkets:Combinationoftheotherthreemarkets.

e.g.NYSE

Inquote-drivenmarkets,traderstransactwithdealers(a.k.a.marketmakers)

whopostbuyandsellprices.

Bidprice:priceatwhichthedealerwillbuyasecurity.

Askprice:priceatwhichthedealerwillsellasecurity.

Inside/MarketBid:highestandbestbidpricefromthetrader’sperspective.

Inside/MarketAsk:lowestandbestaskpricefromthetrader’sperspective.

Inside/marketquote:bestbidpriceandthebestaskpriceinthemarket.

Inside/marketbid-askspread:bestaskprice–bestbidprice

Importantrolesofdealer

Adealermaintainsaninventoryofsecuritiesforwhichhepostsbidandaskprices.

Marketsthattradeilliquidsecurities(e.g.bondmarkets)areorganizedasdealermarketsbecausethelevelofnaturalliquidity(tradingvolume)islow.

Bid

Ask

Dealer

Timeentered

Price

Size

Dealer

Timeentered

Price

Size

A

10:21a.m.

98.85

600

C

10:21a.m.

100.49

800

B

10:21a.m.

98.84

500

A

10:21a.m.

100.51

1000

C

10:19a.m.

98.82

700

B

10:19a.m.

100.55

500

Quote-DEfrfecitviveespnreadMselalorrdkeret2mid-quoteexecutionprice

EffectiveSpread:comparesthetransactedpriceagainstthemid-quoteofthemarketbidandaskprices.

Midquote:averageofinsidebidandaskprice

Effectivespreadbuyorder2executionpricemid-quote

Effectivespreadsellorder2mid-quoteexecutionprice

Effectivespreads<marketspreadpriceimprovement

Effectivespreads>marketspreadmarketimpact

Supposeatraderisquotedamarketbidpriceof$11.50andanaskof$11.56.Calculateandinterprettheeffectivespreadforabuyorder,givenanexecutedpriceof$11.55.

Answer

Thequotedspread:$0.06=$11.56–$11.50

Themid-quoteofthequotedbidandaskprices:$11.53=(11.50+11.56)/2.

Theeffectivespreadforthisbuyorderis:2x($11.55–$11.53)=$0.04

Aneffectivespreadthatislessthanthebid-askedspreadindicatestheexecutionwassuperior(lowercost)tothequotedspreadoraveryliquidmarket.

Supposetherearethreesellordersplacedforastockduringaday.FigureAshowsbidandaskquotesatvariouspointsintheday.

Time

BidPrice

BidSize

AskPrice

AskSize

10a.m

$12.10

300

$12.16

400

1p.m

$12.00

300

$12.07

400

2p.m

$11.80

300

$11.88

400

At10a.m.,amarketordertosell100shareswasexecutedat$12.11.

At1p.m.,amarketordertosell300shareswasexecutedat$12.00.

At2p.m.amarketordertosell600shareswasexecutedat$11.75.

Calculatetheaveragequotedandaverageeffectivespread.

Answer

Time

AskMinusBidPrice

QuotedSpread

10a.m.

$12.16–$12.10

$0.06

1p.m.

$12.07–$12.00

$0.07

2p.m.

$11.88–$11.80

$0.08

Theaveragequotedspreadisasimpleaverageofthequotedspreads

($0.06+$0.07+$0.08)/3=$0.07.

Answer

Time

Midquote

Effectivespread

10a.m.

($12.16+$12.10)/2=12.13

2x($12.13–$12.11)=0.04

1p.m.

($12.07+$12.00)/2=12.035

2x($12.035–$12.00)=0.07

2p.m.

($11.88+$11.80)/2=11.84

2x($11.84–$11.75)=0.18

Theaverageeffectivespread:($0.04+$0.07+$0.18)/3=$0.0967.

Theweightedaverageeffectivespread:N=100+300+600=1000(100/1,000)($0.04)+(300/1,000)($0.07)+(600/1,000)($0.18)=$0.133.

Order-DrivenMarket

Order-drivenmarket:traderstransactwithothertraders.

Electroniccrossingnetworks:ordersarebatchedandcrossedatspecificpointintime;mainlyforinstitutionalinvestors;executionpricearetakenfromothermarket.

Avoidinformationleakage;lowcommission;

Noguaranteetofindacounterparty;nopricediscovery

Auctionmarket:ordersofmultiplebuyerscompeteforexecution;classifiedbyperiodic/batchauction&continuousauction.

Pricediscoverysothatlesspartialfillsproblem

Automatedauction:operatecontinuouslywithinthedayusingaspecifiedrulestoexecuteorders.(e.g.electroniccommunicationnetworks)

Anonymityandcomputerbased;pricediscovery

BrokeredMarkets

Inbrokeredmarket,brokersactasbuy-sidetraders'agentstofindcounterpartiestotheirtradesandcollectcommission.

Usuallypublicmarketissmallanddifficulttofindliquidity.

Helptolocateacounterpartytoa“blockorder”.

Ensuretofindareputationalcounterparties(confidentialinformation).

Brokeredmarketsareparticularlyimportantincountrieswherepubliccapitalmarketsarenotwelldeveloped.

Brokervs.Dealer

RolesofBrokers

Roleofdealers

Representtheorder

Findtheoppositesideofatrade

Supplymarketinformation

Providediscretionandsecrecy

Provideothersupportinginvestmentservices

Supportthemarketmechanism

Provideliquiditybytakingtheoppositesideoftradeorders

Helpmarketoperatecontinuously

Setpricesindealer-drivenmarkets

Asecuritymarketshouldprovide:

Liquidity

Transparency

Assurityofcompletion

Liquidity:tradewithoutdelayatlowcostandinlargequantities.

Markethaslowbid-askspread.

Marketisdeep:bigtradestendnottocauselargepricemovement.

Marketisresilient:differencesbetweenmarketpriceandintrinsicvalueare

minimizedquickly.

Factorscontributetomakingliquidity

Manybuyersandsellers

Diversityofopinions,informationandneeds

Convenience

Marketintegrity

Transparency:availabilityoftimelyandaccuratemarketandtradeinformation

Pre-tradetransparency:obtainaccurateinformationaboutquotesandtradesquickly,easily,inexpensively.

Post-tradetransparency:detailsoncompletedtradesarequicklyandaccuratelyreportedtothepublic.

Assurityofcompletion:thecounterpartywillupholdtheirsideofthetradeagreement.

ExecutionCost

ExecutionCostcanbebrokendowninto:explicitandimplicitcosts.

ExplicitCosts:commissions,taxes,stampdutiesandfees.

Implicitcosts:thebid-askspread,market/priceimpactcosts,opportunitycosts,anddelay(slippage)costs.

Marketimpactcost:theeffectofanorderonmarketprices.

Opportunitycosts:orderisnotfilledandthesecuritypricelatermovessuchthatthetraderwouldhaveprofited.

Delay/slippagecosts:inabilitytocompletethedesiredtradeimmediatelyduetoitssizeandliquidityofmarkets.

Volume-WeightedAveragePrice

Whenpreciseinformationsuchastime-of-trademidquoteismissing,thepricebenchmarkissometimestakentobevolume-weightedaverageprice(VWAP)

VWAP:asecurityistheaveragepriceatwhichthesecuritytradedduringtheday,whereeachtradepriceisweightedbythefractionoftheday’svolumeassociatedwiththetrade.

Example:Volume-WeightedAveragePrice

GoogleInc.islistedonNASDAQ.Atradersold100sharesofGOOGon27September2011at12:42atapriceof$542.23pershare.AssumethatthetradesforGOOGbelowencompassalltradesforthatday.

Time

TradePrice

SharesTraded

9:30

$538.20

300

12:42

$542.23

200

13:58

$549.34

500

Example:VWAP

Answer

Thetotalnumberofsharestradedis1,000,sotheVWAPis:

$538.20

VWAP300

200 $542.23

500 $549.34

$544.58

1,000 1,000 1,000

Executionprice<VWAPsellorder

Implicitcost$544.58$542.23100$235.00

ShortcomingsofVWAP

Itisnotusefulifatraderisasignificantpartofthetradingvolume.

Tradercan“game”thismeasurebyenoughestimateastimeapproachingtheendoftheday.

VWAPdoesnotconsidermissedtrades.

Implementationshortfall:thedifferencebetweentheactualportfolio'sreturnandahypotheticalpaperportfolio'sreturnoftradesexecutedatnocost.

Thereturnonthepaperportfolioisbasedonthedecisionprice.

Thedecisionprice(arrivalprice/strikeprice)isthemarketpriceofthesecurityatthetimethedecisiontotradeismade.

Ifthedecisiontotradeismadeafterthemarketclosesitistakentobethe

previousclosingprice.

Fourelementsofimplementationshortfall:

Explicitcosts:commissions,taxes,fees,etc.

Realizedprofit/loss:thepricemovementfromtherevisedbenchmarkprice(usuallypreviousday’sclose)toexecutionpriceforpartofthetradeexecutedonthedayitisplaced.

Delaycosts:costfromnotbeingabletofilltheorderduringthetradingdaywhentheorderisinitiated.

Missedtradeopportunitycost:thedifferencebetweentheclosingpriceonthedaytheorderiscancelledandtheoriginaldecisionprice.

OnWednesday,thestockpriceforMclosesat$20ashare.(Thispricewillbeusedasthebenchmarkprice)

OnThursdaymorningbeforemarketopen,theportfoliomanagerdecidestobuyMandsubmitsalimitorderfor1,000sharesat$19.95.Thepriceneverfallsto

$19.95duringtheday,sotheorderexpiresunfilled.Thestockclosesat$20.05.

OnFriday,theorderisrevisedtoalimitof$20.06.Theorderispartiallyfilledthatdayas800sharesareboughtat$20.06.Thecommissionis$18.Thestockclosesat$20.09andtheorderfortheremaining200sharesiscancelled.

Gainonthepaperportfolio

Theinvestmentmadebythepaperportfolio:1,000x$20.00=$20,000.

Theterminalvalueofthepaperportfolio:1,000x$20.09=$20,090.

Thegainonthepaperportfolio:$20,090–$20,000=$90.

Gainontherealportfolio

Theinvestmentmadebytherealportfolio:(800x$20.06)+$18=$16,066.

Theterminalvalueoftherealportfolio:800x$20.09=$16,072.

Thegainontherealportfolio:$16,072–$16,066=$6.

Thetotalimplementationshortfall:

implementationshortfall$90$6

$20,000

0.42%

Decompose:

explicitecost $18 0.09%

$20.001,000

realizedloss($20.06$20.05)800

$20.001,000

0.04%

0.09%0.04%0.20%0.09%

0.42%

delaycost($20.05$20.00)800

$20.001,000

0.20%

missdtradeopportunitycost($20.09$20.00)2000.09%

$20.001,000

ImplementationShortfall

Market-adjustedimplementationshortfall

ERiiiERM

Ifmarketreturnis0.8%,ßis1.2

ERi0.8%1.29.6%

market-adjustedIS0.42%0.96%-0.54%

Suppose1,000sharesofAcmeCo.stockareorderedtobeboughtonMondaywithabenchmarkpriceof$10.00.

OnMonday,600sharesarepurchasedat$10.02pershare.Commissionsandfeesare$20.Theclosingpriceis$9.99pershare.

OnTuesday,100moresharesarepurchasedat$10.08pershare.Feesandcommissionsare$12andclosingpriceonTuesdayis$10.01pershare.

Theremainingsharesarenotpurchased,andtheorderiscanceledonWednesdayjustasthemarketclosesat$10.05pershare.

A.Calculatetheimplementationshortfallforthistrade.

B.Calculatethecomponentsoftheimplementationshortfallforthistrade.

AnswerA

Gainonthepaperportfolio:

Costonrealportfolio:

Gainontherealportfolio:

$10.05$10.001,000$50

Monday:600$10.02$206,032Tuesday:100$10.08$12$1,020

700$10.05$6,032$1,020$17

Implementationshortfall: $50$17

1,000$10.00

0.67%

AnswerB

Explicitcost:

Realizedloss:

$20$12$10.001,0000.32%

Monday:($10.02$10.00)600$10.001,0000.12%Tuesday:($10.08$9.99)100$10.001,0000.09%

Monday:($10.00$10.00)600 $10.001,0000.00%

Delaycost:

Tuesday:($9.99$10.00)100$10.001,000-0.01%

Opportunitycost: ($10.05$10.00)300$10.001,0000.15%

VWAPvs.ImplementationShortfall

Advantage

Disadvantage

VWAP

Easilyunderstood.

Computationallysimple.

Appliedquicklytoassisttraders.

Mostappropriateforcomparingsmalltradesinnontrendingmarkets(whereamarketadjustmentisnotneeded).

Notinformativefortradesthatdominatetradingvolume.

Canbegamedbytraders.

Notevaluatedelayedorunfilledorders.

Doesnotaccountformarketmovementsortradevolume.

Portfoliomanagerscanseethecostofimplementingtheirideas.

Recognizesthetradeoffbetween

IS immediacyandprice.

Decomposesandidentifiescosts.

Canbeusedinanoptimizertominimizetradingcostsandmaximizeperformance.

Notsubjecttogaming.

Maybeunfamiliartotraders.

Requiresconsiderabledataandanalysis.

EconometricModelsforCosts

Econometricmodelscanbeusedtoforecasttransactioncosts.

Securityliquiditycharacteristics(e.g.tradingvolume,marketcap,spread)

Sizeofthetraderelativetoliquidity

Tradingstyle(e.g.moreaggressivetradingresultsinhighercosts)

Momentum(e.g.morecostlytobuyinanupthaninadownmarket)

Risk

Theusefulnessofeconometricmodelsistwofold.

Tradingeffectivenesscanbeassessedbycomparingactualtradingcoststoforecastedtradingcostsfromthemodel.

Assistportfoliomanagersindeterminingthesizeofthetrade.

TypesofTradersandPreferredOrder

Information-motivatedtraders:haveinformationthatistimesensitive.

Tradewithadealertoguaranteeexecutionspeed,willingtobearhighertradingcosts,usemarketorder.

Value-motivatedtraders:useinvestmentresearchtouncovermis-valuedsecurities.

Patient;uselimitordersbecauseprice,notspeed,istheirmainobjective.

Liquidity-motivatedtraders:converttheirsecuritiestocashorreallocatetheirportfoliofromcash.

Theyutilizemarketorders.

Passivetraders:tradeforindexfundsandotherpassiveinvestors,tradingtoallocatecashorconverttocash.Morefocusedonreducingcosts.

Patient;uselimitorders;forlowcommission,lowmarketimpact,pricecertainty.

TypesofTradersandPreferredOrder

Trader

Motivation

Preference

Order

Information-motivated

Newinformation

Time

Market

Value-motivated

Perceivedvaluationerrors

Price

Limit

Liquidity-motivated

Reallocation&liquidity

Time

Market

Passive

Reallocation&liquidity

Price

Limit

Daytradersanddealers:dealersseektoearnthebid-askedspreadandshort-termprofits.Daytradersaresimilarinthattheyseekshort-termprofitsfrompricemovements.

Liquidity-at-any-cost:thetradermusttransactalargeblockofsharesquickly.

Need-trustworthy-agent:thetraderemploysabrokertoskillfullyexecutealargetradeinasecurity,whichmayhethinlytraded.

Costs-are-not-important:thetraderbelievesthatexchangemarketswilloperatefairlyandefficientlysuchthattheexecutionpricetheytransactatisatbestexecution.

Advertise-to-draw-liquidity:thetradeispublicizedinadvancetodrawcounterpartiestothetrade.

Low-cost-whatever-the-liquidity:thetraderplacesalimitorderoutsideofthecurrentbid-askquotesinordertominimizetradingcosts.

Focus

Uses

Advantages

Weakness

Liquidityatanycost

(Imusttrade)

Immediateexecutioninblocksize(informationmotivated)

Quick

Guaranteesexecution

Highpotentialformarketimpact

Maybehighcommission

Informationleakage

Needtrustworthyagent

Large-scaletrades,low-leveladvertising

Usebroker’sskill&timetoimproveprice

Highercommission

Possibleleakageofinformation

Losesdirectcontroloftrade

Costsarenotimportant

Certaintyofexecutionatmarketprice

Quick,competitive

Market-determinedprice

Maycreateimpact

Cedesdirectcontroloftrade

Mayignoretacticswithlowercost

Advertisetodrawliquidity

Largetradeswithlowerinformationadvantage

Market-determinedpriceforlargetrades

Moredifficulttoadminister

Highoperational&organizationalcosts

Possibleleakagetofront-runners

Lowcostwhatevertheliquidity

Non-informationaltrading;indifferenttotiming(value-motivated,passive)

Lowcommission

Opportunitytotradeatfavorableprice

Highersearchandmonitoringcosts

Uncertaintyoftrading

Possiblytradingintoweakness

AlgorithmicTradingStrategies

Algorithmictradingistheuseofautomated,quantitativesystemsthatutilizetradingrules,benchmarks,andconstraints.

Themotivationforalgorithmictradingistoexecuteorderswithminimalriskandcosts.

Itcanbeusedinaliquidvenue.

Classificationofalgorithmicexecutionsystems:

Logicalparticipationstrategies

Opportunisticparticipationstrategies

Specializedstrategies

AlgorithmicTradingStrategies

Logicalparticipationstrategies

Simplelogicalparticipationstrategy:tradewithmarketflowsoastonotbecomeoverlynoticeabletothemarketandtominimizemarketimpact.

VWAPstrategy:splitanorderovertimetomatchorimprovetheday’sVWAP.

TWAPstrategy:orderisspreadoutevenlyoverthewholedayanditisusefulforathinlytradedstockwithunpredictableintradaytradingvolume.

Percentofvolumestrategy:orderistradedinproportiontooverallvolume.

Implementationshortfallstrategies:tradeheavilyearlyinthedaytoensureordercompletiontominimizeopportunitycost.

Opportunisticparticipationstrategies:tradepassivelyovertimebutincreasetrading

whenliquidityispresent.

Fourcharacteristicsofbestexecution

Bestexecutioncannotbejudgedindependentlyoftheinvestmentdecision.

Bestexecutioncannotbeknownwithcertaintyexante.

Althoughbestexecutioncanbemeasuredexpostovertime,itcannotbemeasuredforasingletrade.

Relationshipsandpracticesareintegraltobestexecution.

Problemswithdefiningabestexecution

Difficulttodefineagoodbenchmark.

Hardtomeasureimplicitcosts(marketimpact/andopportunitycosts).

Institutionsbreaklargeblocktradesoverdifferentsmalltrades,makingitdifficulttoassesstheirexecution.

Difficulttodefine“best”forallkindsoftrading.

R30MonitoringandRebalancing

Monitoring&Rebalancing

ReasonsforMonitoring

Changesininvestorcircumstances

Changesinanyoneoftheinvestor’sobjectivesand/orconstraints(RRTTLLU)

Changesinmarket/economicconditions

Assetriskattributes;marketcycles;centralbankpolicy;yieldcurve;inflation

Changesintheportfolio

Thedifferentassetallocationsmaygrowatdifferentratesandtheallocationcouldchangesignificantly.

BenefitsandCostsofRebalancing

BenefitofRebalancing

Maintainingtheinvestor’sdesiredriskexposure.

Rebalancingalsoprovidesdiscipline.

CostsofRebalancing

Transactionscosts:explicitcost(e.g.commission)andimplicitcost(e.g.bid-askspread,marketimpactcost)

Taxcostgeneratedbysellingassetthathaveappreciatedinvalue.

CalendarRebalancing:rebalanceonapredetermined,regularbasis(e.g.,monthly,quarterly).

Benefit:providesdisciplinewithouttherequirementforconstantmonitoring.

Drawback:portfolioallocationcoulddiffersignificantlyfromitsoptimalweightsbetweenrebalancingdates.

Percentage-of-portfolio/intervalrebalancing:rebalancingistriggeredby

changesinvalueratherthancalendardates.

Themanagersetstolerancebandsorcorridorsthatareconsideredoptimalforeachassetclass.

corridor=T±(PxT)

Benefit:minimizethedegreetowhichassetclassescanviolatetheirallocationcorridors.

Drawback:needtoconstantlymonitortheportfolio.

Factorsofoptimalcorridorwidth(positivecorrelation)

Transactionscosts

Thehigherthetransactionscosts(thelowertheliquidity)foranassetclass,tradingcanbequiteexpensive,thewideroptimalcorridors.

Risktolerance

Thehigheraninvestor'srisktolerance(lessriskaverse),thelowertheimpactondeviationsfromtargetweights,thewideroptimalcorridors.

Correlationofreturnswithotherassetclasses

Themorecorrelatedtheassetsinaportfolio,thelessfrequentlytheportfoliowillrequirebalancing,thewideroptimalcorridors.

Factorsofoptimalcorridorwidth(negativecorrelation)

Volatilityofassetclassreturns

Greatervolatilityofassetclassreturnsmakedeviationsfromtargetweightspotentiallymorecostly,narroweroptimalcorridorwidths.

Volatilityofotherassetsclassreturns

Greatervolatilityofthereturnsontheotherassetsinaportfolio,narrower

optimalcorridorwidths.

Factor

Effectoncorridorwidth

Explanation

PositiveEffect

Transactioncosts

Highertransactioncosts,wideroptimalcorridor

Hightransactioncostssetahighhurdlerateforrebalancingbenefitstoovercome

Risktolerance

Higherrisktolerance,wideroptimalcorridor

Highrisktolerancemeanstolerancefordivergencesfromtarget

Correlationwithrestofportfolio

Highercorrelation,wideroptimalcorridor

Highcorrelationmeansdivergencefromtargetsislesslikely

Negative

Volatilityofassetclass

Higherassetclassvolatility,narroweroptimalcorridor

Highvolatilityrelativetotherestmeansmorelikelihoodtodivergefromoriginalallocation

Effect

Volatilityofrestofportfolio

Highervolatilityofrestofportfolio,narroweroptimalcorridor

Highvolatilityoftherestmeansmorelikelihoodtodivergefromoriginalallocation

Rebalancingtotargetweightsvs.rebalancingtotheallowedrange

Rebalancetotargetweight:requiremoreorlessconstanttrading,hightransactioncostandtimeintensive.

Rebalancetotheextentnecessary:moveassetclassweightsbackwithintheallowedrange.

DynamicRebalancingStrategies

BuyandHold:oncetheinitialallocationismade,norebalancingisdone.

Constant-Mix:rebalancetheportfoliotoitstargetweights.

Constant-Proportionportfolioinsurance(CPPI):targetweightinequitiesvariesdirectlywiththedifferencebetweentheportfoliovalueandsomeminimumvalue(floorvalue).

Buy-and-holdstrategyisapassivestrategy;norebalancingisrequired(i.e.,itisa"do-nothing"strategy).

Ifequitiesincrease(decrease)invaluetheweightinequitiesincreases(decreases).

Investmentinstocks=Cushion=Portfolio–Floorvalue(T-bill)

Linearrelationshipbetweentheportfolioreturnandstockreturn

Portfolioreturn=stockratioxreturnonstock

Investor’srisktoleranceispositivelyrelatedtowealth.

Constant-mixstrategy:keepaconstantratioofstockstototalassets.

Targetinvestmentinstocks=mxportfolio

mistargetproportioninstocks(0<m<1)

Asstockpricesrise(fall),stockratioincreases(decreases),sostocksmustbe

sold(purchased).

Thereductionintheequityallocationasequityvaluesincreasereducestheincreaseinportfoliovalue.concaverelationship.

Ifstockscontinuetodecline,moreandmorecashisusedtopurchasestocks.Attheextreme,theportfoliogoestozero.

Investor’srisktoleranceisincreasesproportionatelytowealth.

Constant-proportionportfolioinsurance(CPPI)strategies:

targetequities=mx(portfoliovalue–floorvalue)=mxcushion

m>1.0anddoesnotchangeonceselected.

Asequitiesincrease(decrease)invalue,thecushionincreases,andtheweightofequitiesintheportfolioisincreased(decreased)asaresult,sostocksmustbepu